Federal Reserve Bank of St. Louis President James Bullard said a decline in joblessness below the natural rate may force policy makers to raise rates faster in the future.
“We’re in reasonably good shape” with regard to monetary policy but “the odds that we will fall somewhat behind the curve have increased modestly,” Bullard, who votes on policy this year, said in a Bloomberg interview in New York Wednesday. “We are going to get some overshooting here in the relatively near term” on the non-accelerating inflation rate of unemployment “that might cause the committee to have to raise rates more rapidly later on.”
The Federal Open Market Committee kept interest rates unchanged last week and halved projections for how many times it would hike this year from four times in December after volatility in financial markets and weakening global growth clouded the U.S. economic outlook. Officials lowered their forecasts for longer-run unemployment to 4.8 percent.
Bullard said he sees joblessness falling to 4.5 percent this year. The rate held at an eight-year low of 4.9 percent last month. PCE inflation, the Fed’s preferred gauge, as well as core PCE, the rate that excludes volatile components such as food and energy, will be over 2 percent in 2017, he said.