Bullard Says Economy Strong Enough to Handle 2015 Rate Rise

 

James Bullard, president of the Federal Reserve Bank of St. Louis, said the U.S. economy is improving enough to withstand an increase in short-term interest rates next year as growth picks up.

“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,” Bullard, who favors raising the benchmark rate in the first quarter of 2015, said at an event today in New York.

The Federal Open Market Committee is closer to its goals for full employment and low and stable inflation than many investors realize, Bullard said. He predicted the pace of economic growth will accelerate to 3 percent this year after an unexpectedly deep first-quarter contraction.

“Inflation is picking up now. It is still below target but it has been moving up in recent months,” he said in response to a question at a forum organized by the Council on Foreign Relations. “I don’t think financial markets have internalized how close we are to our ultimate goals, and I don’t think the FOMC has internalized how close we are.”

The FOMC is debating how long to keep the benchmark federal funds rate near zero after completing a bond-purchase program that’s set to end late this year. The committee repeated on June 18 that it expects the rate to remain near zero for a “considerable time” after the purchases end.

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