The Federal Reserve is really close to its policy goals.
This was the message of St. Louis Federal Reserve President James Bullard, who spoke today in Palm Beach, Florida at the Tennessee Bankers Association Annual Meeting.
Bullard’s presentation used a formula to show that the Fed is closer to its stated policy goals of maximum employment and 2% inflation than at any time in the past five years.
For maximum employment, Bullard used the midpoint of the Fed’s most recent projection for longer-run unemployment of 5.4%. The Fed views maximum employment as largely determined by nonmonetary factors that are hard to directly measure.
Bullard plugs the these into a formula that spits out a summary “distance” from the overall target.
The ‘0’ on the x-axis of the charts below corresponds to the point at which the Fed satisfying its policy goals.
The square root of Bullard’s formula provides a different scale factor to more easily see where the Fed’s policy currently stands in relation to its goals. It is well ahead of its 50-year average.
This chart shows how the Fed is as close as its been to its policy goals since the 2008 financial crisis, and is beating its distance-from-target average since 2006.
In addition the the Fed closing in on its goals, the U.S. economy appears to be rounding into form.
Last Friday’s May jobs report showed the U.S. economy added a solid 217,000 nonfarm payrolls, while the unemployment rate was steady at 6.3%. And following the jobs report, Citi’s Steven Englander noted that economic data have given the Fed no reason to change its narrative ahead of its next policy meeting, scheduled for June 17-18.
You can see Bullard’s full presentation here.