Football and the art of deciding US rate policy

James Bullard, president of the St Louis Federal Reserve.
James Bullard, president of the St Louis Federal Reserve.PHOTO: BLOOMBERG

It is unusual to hear United States interest rates and football mentioned in the same sentence, but US banking official James Bullard made the link yesterday to make the case for a rate hike.

Mr Bullard, president of the St Louis Federal Reserve and a voting member of the Federal Open Market Committee (FOMC), said in a lecture here last night: "It's a bit like a soccer match and there are going to be goals scored. The FOMC is going to score three goals and the markets guys are going to score only two goals."

In Mr Bullard's view, the US Fed is ahead 3-2 - with three compelling reasons in favour of the FOMC's forecast of a "slow normalisation" of rates against the two most often cited by those in the market who want rates to stay low.

He pointed to the strong US labour data, inflation measures moving in a positive direction and signs that the impact of negative global factors on the US economy was waning.

But he conceded there was data supporting the market-based view that rates should stay low. These were slower GDP growth and expectations that US inflation will stay low, said Mr Bullard, who was speaking at the inaugural Official Monetary and Financial Institutions Forum City Lecture co-hosted by DBS.

When asked if the Fed has any "sudden-death" goals, he said goals were all "equally weighted" for him, but he added that the labour market data tends to carry more weight for policymakers.

"The rule of thumb around the Federal Reserve is that if GDP data is in conflict with labour market data, the labour market data wins. So in a way, it gets more than a single goal's weight."

But he was careful to put some distance between his opinions and the upcoming Fed meeting in June.

"As far as the June meeting and the 3-2 score, I was careful not to say what it meant for the June meeting. I'm keeping an open mind... I want to look at data available at the meeting and make a judgment based on those factors."

He also downplayed the risks of Britain leaving the European Union. "I do not think Brexit is the global financial event it's made out to be.

"Even if there's a leave vote, all it means is you would restart trade negotiations. There's a lot of continuity between the day before the Brexit vote and the day after because nothing would change immediately."

Mr Bullard, who visited Beijing earlier this week, also said the risks of China's foreign exchange regime should not keep the US from pursuing the right monetary policy.

"China is a big economy. There are some risks there that the economy might not perform up to expectations. We can't be on pins and needles and say we are not going to pursue the right policy for the US because something bad might happen in that situation."

A version of this article appeared in the print edition of The Straits Times on May 27, 2016, with the headline 'Football and the art of deciding US rate policy'. Print Edition | Subscribe