Bullard daydreams!

NEW YORK–Federal Reserve Bank of St. Louis President James Bullard said Thursday that an improving economy and rising price pressures mean the U.S. central bank is getting closer to the time when it will need to raise short-term interest rates.

I don’t think financial markets have internalized how close we are to our ultimate goals, and I don’t think the [Federal Open Market Committee] has internalized how close we are to our ultimate goals,” Mr. Bullard said in a discussion after a speech at the Council on Foreign Relations.

He said, after a dreadful first quarter, he sees the economy moving back to and sustaining a 3% growth rate, as inflation continues to move higher and breaches the Fed’s 2% target by next year. Meanwhile, he sees what is currently a 6.3% unemployment rate edging down to 5.8% by year’s end. If this is achieved, it would result in an economy that has moved back toward a far more normal state of affairs, even as Fed policy is still at emergency settings, he said.

I’m starting to think the economy could tolerate at least a little bit of the central bank getting back to a more normal stance” when it comes to monetary policy, Mr. Bullard said.

I believe that any undergraduate essay containing these arguments would get a resounding F, but Federal Reseve members get off scott-free!

Things are getting worse, not better, and the first quarter slump may be indicating ominous things to come.

Ben Casselman over at FiveThirtyEight has a much more sobering view:

Bloomberg article this week declared that the long-term unemployed were “finally catching a break.” [likely a Bullard-style daydreamer]

The reality, however, appears to be much bleaker. The government uses a relatively narrow definition of unemployment that includes only people who are actively looking for work. That means unemployment can fall for good reasons (because people are finding jobs) or bad ones (because they’re giving up looking). The recent decline in long-term unemployment is being driven by the bad reasons.

I supplement his charts with an additional one that clearly shows that long-term unemployment (inverted scale) falls by as much as the labor market drop-out increases.

Bullard Daydreams

Bullard and other FOMC members should know that that´s the bad way to solve the problem, although he can always argue that the “(raw) numbers are on his side”.

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