Investing.com – The president of the Federal Reserve (Fed) of St. Louis James Bullard compared and contrasted the difference between the current projection of the U.S. central bank on tightening monetary policy and market expectations on Monday and concluded that there was evidence to support both forecasts.
In a speech titled “Slow normalization or no normalization”, Bullard pointed out that the Fed’s view suggested a gradual pace of rate increases over the next several years, while the market’s projection was much shallower, suggesting only a few increases over the forecast horizon which he considered to be “almost no normalization”.
Bullard admitted that both scenarios had merit with the Fed view taking into account strong labor markets, waning international headwinds and inflation measurements moving closer to the 2%, while markets focused on slow real gross domestic product (GDP) growth and low inflation expectations.
“U.S. evidence from labor markets, actual inflation readings and global influences suggests the (Fed) median projection may be more nearly correct,” he said.
However, “U.S. evidence from recent readings on GDP growth and market-based inflation expectations suggests the market view of the path of the policy rate may be more nearly correct,” he concluded.