St. Louis Fed/James Bullard/05-19-17
• On balance, the U.S. macroeconomic data have been relatively weak since the March FOMC meeting. • U.S. inflation and inflation expectations have surprised to the downside in recent months. • Labor market improvement has slowed over the last two years. • Low unemployment readings are probably not an indicator of meaningfully higher inflation over the forecast horizon.
• Real GDP growth measured from one year earlier has averaged just 2.1 percent over the last seven years. • The last two years have shown very little change in year-over-year real GDP growth. o 2015-Q4: 1.9 percent; 2016-Q4: 2.0 percent. • A natural conclusion is that the economy has converged upon a growth rate of about 2 percent. • Is the U.S. economy likely to move meaningfully off of this trend in 2017? o The short answer is no.
• Financial market readings since the March decision have moved in the opposite direction: o longer-term yields have declined, o inflation expectations have weakened, and o market expectations of the policy rate path have declined. • This may suggest that the FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance.
