Bullard Laments Fed Dot Plot, Yearns for Greenspan's Opacity
(Bloomberg) -- The Federal Reserve’s dot plot is getting old.
So says the president of Federal Reserve Bank of St. Louis referring to the diagram, published four times a year since January 2012, of interest-rate forecasts from U.S. central bankers. The median of most recent estimates showed expectations for a total of three to four rate hikes this year, including the increase that officials made in March.
“The whole idea that you’re naming the number of rate hikes way out into the future when you don’t know what the data are going to be is something we should get out of the business of doing.” James Bullard, the St. Louis Fed chief since 2008, said in an interview with Kathleen Hays on Bloomberg Radio Wednesday. “When you’re at zero and you’re giving forward guidance, that’s one thing. But we’re not at zero anymore.”
San Francisco Fed chief John Williams separately told Bloomberg on Tuesday that the central bank ought phase out forward guidance in the policy statement released by the rate-setting Federal Open Market Committee after each of its meetings.
Bullard says the Fed should be sending signals that the policy rate is near or at neutral -- the level at which it’s neither stimulating or slowing economic growth -- which would help it be more agile to respond the developments in the economy.
“We should be more Greenspanian in the policy where you say, ‘we think we have the rate about where is needs to be today and we’re going to monitor developments and we’ll reach to what happens in the future,”’ he said, referring to former Fed Chairman Alan Greenspan, who relished his deliberate opacity.
An outlier among Fed officials, who advocates for no more rate hikes through 2020, Bullard says he’s trying to push back against the view that the economy is at risk of overheating and requires a series of well-telegraphed rate increases.
“My advice would be, stand pat where we are, certainly watch the data carefully, watch for surprises and adjust accordingly,” Bullard said. “But I don’t think we have to scramble to get to some higher level of rates in order to contain inflation.”
Bullard has previously cautioned against raising rates at a pace that pushes short-term yields above longer-term ones, which in the past has been a harbinger of recession, and he repeated that warning.
“If we go too aggressively to the point where we invert the yield curve, I would take that as a very negative signal, and our risk of recession would go up,” he told reporters during a media briefing later on Wednesday. “My main point about that is I don’t think we’re in a situation where we have to push so hard.”
The spread between 5-year and 30-year Treasuries on Monday touched the lowest level in more than a decade and the issue is dividing officials.
Atlanta Fed chief Raphael Bostic said earlier on Wednesday “I have had extended conversations with my colleagues about a flattening yield curve” and “we are aware of it. So it is my job to make sure that doesn’t happen.”
Williams, in his interview, said “am I worried today about the fact the yield curve is flat? No. Because I think that’s driven primarily by the fact that the Fed is tightening, long rates are moving up, but not surprisingly, not one-for-one.”
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