Central Banks

Wednesday, June 3, 2015 - 17:05

Fed's Bullard:Expect Better Data Later In Yr;Want Confirmation


--Econ Weakness Is Transitory
--Independent Views Critical To Superior Mon Pol

ST. LOUIS (MNI) - The Federal Reserve should act to raise interest rates if economic data improves as expected over the next few months, St. Louis Federal Reserve Bank President James Bullard said Wednesday.

Calling the economy's first-quarter weakness "transitory," Bullard said it should cause only a temporary delay in the timetable for raising rates. "I think the data will be better later in the year ... but I'd like to see that confirmed so we can get on with the normalization process," he said at a press conference ahead of the annual St. Louis Fed's Homer Jones lecture.

The featured speaker, former European Governing Council member Athanasios Orphanides, said at the briefing that he thinks the Fed has already waited too long to raise rates. If it had begun the tightening process already, he said, it would now be getting valuable information from the markets about the initial move's effect.

"By delaying, the Fed is losing the opportunity to calibrate its policy next year," Orphanides said. "Uncertainty should be used as a reason to tighten earlier rather than later."

Bullard said he agrees that the Fed is "behind schedule," but he added, "I would like to move on the back of good news. It's very difficult to say you are going to normalize things just when the economy looks a little weak."

He added that markets are correct in perceiving a reduced chance of a rate increase at the Fed's June meeting. "The shifts that are apparent in market thinking are entirely appropriate given the weak data we have seen since the spring," Bullard said.

He argued, though, that an interest rate move should be on the table at every meeting, even when Chair Janet Yellen doesn't have a scheduled press conference. "This notion that we're only going to move at a meeting with a press conference is hurting the committee and complicating this process," Bullard said.

"Chair Yellen has said she is willing to call a press conference at any meeting, and I take her at her word. That would put July on the table," he added.

Orphanides, who formerly served as the head of the Central Bank of Cyprus, was critical of the handling of the Greek crisis. "To be still talking about the possibility that a country may or may not be getting out of the euro area after five years is an indication of the failure of the project," he said.

European political leaders "are still in denial about the fundamental causes of the problem and have not taken necessary steps to address it," he added.

In prepared remarks to introduce Orphanides' speech, Bullard said a central bank that is not hostage to "group think" will craft "superior" monetary policy that will eventually translate into stronger economic activity.

In prepared remarks to introduce a speech by former ECB Governing Council member Athanasios , Bullard said the independence of views continues to be a critical component of U.S. monetary policy.

"The Fed's ability to absorb and be open to multiple viewpoints helps prevent groupthink and leads to superior monetary policy and ultimately to better macroeconomic performance," he added.

Bullard's comments come just as a senior lawmaker last month unveiled a package of proposals intended to provide regulatory relief to small banks, but which also included measures to overhaul the Fed's structure. Senate Banking Committee Chairman Richard Shelby ultimately moved ahead with a broad bill that was approved by the panel on a straight 12 to 10 party line vote on May 21.

It would require Senate confirmation of the president of the New York Federal Reserve Board, mandate quarterly appearances before Congress's banking committees by the Fed chair rather than semi-annual ones, and create an independent commission to consider if a broader overhaul of the central bank is needed.

The FOMC would also be required to denote in the quarterly monetary policy report what rules the it has used or considered in its decision-making process.

--MNI Washington Bureau; tel: +1 202-371-2121; email: besene@mni-news.com

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