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VOL. 131 | NO. 11 | Friday, January 15, 2016

Fed Official: Low Oil Prices Affecting Central Bank Action

By Andy Meek

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A key Fed official assured Memphis business leaders during a breakfast address Thursday, Jan. 14, that interest rates won’t climb dramatically this year.

JIM BULLARD

Jim Bullard, the president and CEO of the Federal Reserve Bank of St. Louis, told the Economic Club of Memphis that rates today are “crazy low compared to the historical experience in the U.S.” and will “remain accommodative well into the future.”

Statements like those from Fed officials like Bullard, who’s also a voting member of the Fed’s policymaking committee, are being watched closely in the wake of the central bank’s move in December to raise interest rates for the first time in almost a decade. Bullard also is one of several Fed voting members giving public remarks this week around the country – remarks being scoured for signs that could point to the timing and degree of a second rate hike.

Bullard has been somewhat hawkish over the past year or so in terms of wanting to move more quickly to raise interest rates, based on his public remarks throughout 2015. His speech in Memphis, though, reflected a more cautious sentiment.

One reason? Keeping prices stable is one of the Fed’s mandates – it has a policy target of 2 percent inflation – but Bullard said recent oil price declines seem to be leading to “worrisome” expectations for low inflation.

He pointed to oil prices of around $30 a barrel at one point this week, compared to more than $105 per barrel during the summer of 2014. And while he said relatively low crude oil prices today are a “net positive” for the U.S. economy, Bullard added they also push out into the future a return to a normal inflation environment.

“Headline inflation will return to target once oil prices stabilize, but recent further declines in global oil prices are calling into question when such a stabilization may occur,” Bullard said.

He told reporters after his public remarks the Fed needs to get a clearer read on inflation before moving on additional rate increases.

Bullard kicked off his address to the economic club by acknowledging the recent choppy performance of the stock market: “We’re certainly aware of that and are paying attention.” He also conceded that the Fed’s rate-hike action has implications for U.S. congressional leaders.

“But that’s why we elect them,” he said. “I’m telling you why I think this is the best monetary policy.”

It’s then Congress’ job, he went on, to decide how best to manage things like taxes and government expenses.

Bullard also said the central bank is in a better position now than during the Great Recession to manage financial crises. Those are “always a possibility, and you can’t legislate them away,” he said.

But he stressed that U.S. monetary policy “will remain accommodative well into the future.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 74 74 17,939
MORTGAGES 95 95 20,660
FORECLOSURE NOTICES 8 8 2,701
BUILDING PERMITS 141 141 36,977
BANKRUPTCIES 59 59 11,485
BUSINESS LICENSES 17 17 5,865
UTILITY CONNECTIONS 27 27 6,857
MARRIAGE LICENSES 41 41 4,090