St. Louis Fed president James Bullard thinks the Federal Reserve can do without publishing the ‘dot plot‘.
The graphic, published with the Fed’s Summary of Economic Projections, is a representation of where the 12 FOMC members see the benchmark fed funds rate at the end of the year, over the next few years, and in the long run.
In a Bloomberg interview on Wednesday, Bullard said he has considered declining to provide a dot for the exercise, as he gets more concerned about forward guidance from the Fed.
He said the issue with forward guidance is that markets may take the Fed’s projections as a promise.
He added that the dot plot may have helped spark the stock-market sell-off at the beginning of this year.
When the Fed raised rates in December, the plot showed that FOMC members saw four rate hikes this year. This was lowered at its meeting last week to two. And despite this reduction, the market is projecting a lower path of rate hikes.
Bullard said “this is not a good situation to have”, as the market is more dovish than the most dovish FOMC member.
“I’ve been worried that [the gap between the market’s and the Fed’s projections] would have to get reconciled in a violent way” that causes a lot of turmoil in markets, he said. “I hope that doesn’t happen.”
He added that he never really liked the balance or risks statements, which show members’ thoughts on potential decisions in the future. He said there is an “overkill” how much certainty FOMC members could have in preparing this.
Bullard thinks there is a case for the Fed to raise rates at its meeting in April. In her press conference, Fed chair Janet Yellen noted that every meeting was “live,” although the April session will not be followed by a presser in which she can explain the rationale for a hike.
Bullard said jobs growth accelerating faster than expected could also boost the case for an April hike. He thinks the Fed would overshoot on inflation, and doesn’t think it would be a problem.
But the Fed should not raise rates with inflation expectations falling.