Halister News

(Bloomberg) -- St. Louis Fed Pres. James Bullard’s views on policy are creating well-deserved debate about significance of central bank’s rate forecasts, Jefferies economist Thomas Simons said in phone interview Fri.

• “What the dots do now is create a lot more confusion and frustration than effective communication would”; “it’s doing a lot more harm than good at this point”
• “The dots had really strong justification when the Fed was trying to tell markets that rates would be low for a long time. Now we’re relying on the Fed’s ability to forecast economic variables and how monetary policy fits into the context of the rest of the world, and it’s not good enough for this to be useful information”
  • “The world economy is very complex at this point, and the Fed is running monetary policy in a way that’s diverging from other major central banks. But more than anything, their forecasting ability is not strong enough to rely on a very detailed forecast like this”
• “The general position he’s taking on, insofar as the way growth and inflation are likely to progress in the next couple of years, suggests a low fed funds rate is justified”
• Still, “there may be some element of exaggeration to get his point across”
• “The Fed needs a significant amount of introspection to examine the way it’s communicating with the market” and “has constrained its ability to make policy decisions based on market pricing”
• “Obviously, the Fed cares about market expectations for policy. We saw that in the last few weeks”
  • “At what point are they going to hike again? And at what point are investors going to say, ‘I’m not going to make a play because the Fed keeps backing off’?”
  • “If that happens, the market is never going to show expectations that the Fed is going to hike. If Fed communications stay the way they are, the Fed is going to have to surprise markets and just hike”