The “dove” said “it won´t last forever”. The “hawk” said “you shouldn´t have said it would last so long”

At the U of Chicago Booth School of Business Conference after Dudley there was Bullard:

 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:

  1. 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?
  2. 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”!

4 thoughts on “The “dove” said “it won´t last forever”. The “hawk” said “you shouldn´t have said it would last so long”

  1. Jeez, who are these guys who won’t do anything because it “might” cause inflation.

    Anything “might” happen.

    I can tell you for fact we are 13 percent down on our GDP, we have a shrinking labor force, and the DJIA is at 1999 levels, and commercial real estate is selling for half price, and unit labor costs are below 2009 levels. Those are not “mights.” Those are real.

    But, I guess if you have a safe job at the Fed, one can pompously pettifog about inflation, and issue sermonettes on the evils of inflation.

    Because you know, we “might” have inflation, so it is better we suffocate the economy now, to make sure we don’t.

  2. “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”!

    The worst bet of the century was when Bill Gross and Jim Rogers thought we were in a “Treasury bubble” in 2010 that was about to burst. Both these lords of the universe lost huge trying to short Treasuries.

  3. I don’t think many people are placing much weight on the “2014 commitment” or even the old 2013 commitment. If anything, the Fed contradicts itself with the economic forecasts it released, if you assume a gradual return to a neutral fed funds rate, you would need to start hiking in 2013. The point is, if we don’t get any major wars or significant deterioration in the sovereign debt situation, then inflation may well become an issue, and maybe sooner than some are expecting.
    .

    • CBN, That´s one of the major problems with Bernanke & the FOMC. Few give much weight to their commitment! And the forecasts are useless an “exercice about nothing” to paraphrase Seinfeld. But inflation? I don´t think so. And many have cried “wolf” for a long time, but it´s just not there.

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