St. Louis Federal Reserve Bank President James Bullard expressed optimism over the economic recovery on Friday, saying he saw a “real gain” in the recent decline in the unemployment rate.
The Fed official also distanced himself from the specific language in the central bank’s latest policy statement. Last month the Fed said it expected to keep interest rates at exceptionally low levels until late 2014. Bullard said that he would have preferred not to include a “calendar date” in the statement.
“Way out at the end of 2014, we don’t know what the economy’s going to look like and it over-emphasizes our forecasting ability, which isn’t that good,” Bullard told reporters at a conference on Friday held by the University of Chicago Booth School of Business.
Bullard was largely hopeful about the economy’s prospects in 2012. “It’s reasonable to be optimistic,” he said.
“Just because you had some bad shocks and things went badly in 2011 doesn’t mean that’s what’s going to happen in 2012,” he said. The probability of a severe meltdown in Europe is now lower, compared to last fall, he said.
Bullard said he saw a risk that inflation could rise from its current level, noting a recent rise in gas prices and rents.
While no asset bubbles were immediately apparent to him, Bullard did not rule out the idea that some could be developing.
“It is a risk going forward,” he said.
A couple of comments:
- If we have trouble “forecasting the past”, imagine if it´s about the future! So the best thing to do is: set a clear (preferably level) target and then set policies that are expected to hit the target. What´s the use of having half a dozen or more different forecasts for half a dozen or more variables?
- The only “bubbles” that could develop in the present environment are those formed from the last breadth of those drowning if you “fill the hole the economy is in with water”!