In “Why Very Weak Inflation Unlikely to Deter Rate Hikes” we hear the opinions of two FOMC stalwarts:
Two central bankers on Friday explained why they both foresee a likely rise in rates despite an inflation environment that seemingly argues against such a move. For John Williams of the San Francisco Fed and James Bullard of the St. Louis Fed, it comes down to a combination of success in promoting unemployment(sic) and growth, and their assessment of the overall influence of monetary policy.
The drive to push up rates owes significantly to the fact the job market is likely to be at levels that should start generating inflation by year end, Mr. Williams said. So while the Fed is falling short on inflation, he continues to expect this situation to change.
What’s more, with rates near zero right now, a small rate hike would still leave the overall stance of central bank policy at very supportive to growth.
Mr. Bullard, speaking on Bloomberg television, has a more aggressive outlook for policy. Keeping interest rates near zero “is not the right interest rate for this economy. We are much closer to our goals than we have been in a long time. Inflation is a little bit low, but it is not low enough to rationalize the zero interest rate policy,” Mr. Bullard said.
“As long as we feel confident that inflation will go back toward target…I think we are certainly able and willing” to raise rates, Mr. Bullard said.
In past comments Mr. Bullard has echoed points similar to that of Mr. Williams. Put simply, a modest rise in rates is a compromise between the Fed’s job and employment mandates. Higher rates recognize success in lowering the jobless rate, while keeping them at historically low levels allows more job gains and growth that should over time allow price pressures to return to target.
I wonder where these guys get these ideas. It´s certainly not from data and history. Where, for example, do we see over the last 25 years more job gains and growth increasing price pressures?
And how can you “generate price pressures” with such a comparatively measly level of nominal spending growth?