Fed's Bullard Slams Recovery Narrative, Confirms Fed Top-Ticked Economy; Hints At Fed Policy Error
Back in 2014, just as the market was plunging, St Louis Fed's Bullard stopped the bleeding when in a Bloomberg interview said that a "logical response" to the tumbling market, would be to "delay the end of QE" and strongly suggested ed that "QE4" would be considered to prevent further market losses. The S&P exploded.
Well, this morning the Fed's nonvoting converted permadove (Bullard used to be the most hawkish Fed member until his unexpected conversion in 2014), is back and in prepared remarks for a speech in St. Louis is once again suggesting that all the talk of an "overheating" economy was just that saying that “financial market readings since the March decision have moved in the opposite direction” of what would normally occur after a rate hike, adding: "this may suggest that the FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance.”
Speaking in St. Louis, Bullard admitted that U.S. macroeconomic data have been relatively weak, on balance, since the Federal Open Market Committee (FOMC) met in March and raised the fed funds rate. He said that economic growth is unlikely “to move meaningfully” this year from the current trend of about 2 percent.
He also said that inflation and inflation expectations “have surprised to the downside” and noted that financial market readings since the March decision have been opposite of expectations.
Additionally, “even if the U.S. unemployment rate declines substantially further, the effects on inflation are likely to be small” and notes that “labor market improvement has been slowing, perhaps close to a trend pace, given the current labor productivity growth regime.”
Bullard also commented on the slowing GDP growth rate, saying that “tracking estimates for second- quarter real GDP growth suggest some improvement from the first quarter, but not enough to move the U.S. economy away from a regime characterized by 2 percent trend growth.”
“This may suggest that the FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data,” Bullard said. He also discussed the relationship between unemployment and inflation and said that, even if U.S. unemployment declines substantially further, the effects on inflation are likely to be small.
Translated: Bullard confirms that the Fed once again top-ticked the economy, something only the S&P appears to have missed.
As for the Fed's expectations of 2 rate hikes for 2017... let's just say the economy disagrees.
The result: both USDJPY and S&P futures are not happy with today's admission by at least one non-voting Fed president that the Fed may have one again made a "policy error."