If you want to know what happens once the Fed hikes interest rates, you’d do well to ask one of the senior executives within the central bank’s decision-making body.
St. Louis Federal Reserve Bank CEO James Bullard met with Business Insider earlier this year, to discuss monetary policy, the inner workings of the Fed and cyber security.
He participates in the Federal Open Market Committee and in 2016, will rotate in as a member of the group, putting him in position to directly impact rate decisions.
This is what he thinks will happen once interest rates are increased.
“I think as we increase interest rates, I would expect continued labour market improvement. The unemployment rate will head down into the 4% range, possibly into the very low 4% range over the forecast horizon. That’s already baked in the cake because the committee has already committed to a low path of interest for this stage of the business cycle. I think there will be continued improvement on those dimensions.”
It’s not clear how currency markets will be impacted, he said.
“On the dollar, if the US is the strongest economy in the world, you’re going to see a stronger dollar. That’s unpredictable, because other economies can surprise to the upside. Sometimes that will strengthen their currency and weaken the dollar. It’s unclear what the ramifications would be for the dollar.”