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Bullard: Fed is behind the curve

St. Louis Fed president James Bullard said in a presentation, “standard Taylor-type monetary policy rules, even if based on a minimum interpretation of the persistent component of inflation, still recommend substantial increases in the policy rate.” Also, “credible forward guidance means market interest rates have increased substantially in advance of tangible Fed action. Both are indications that Fed is “behind the curve”.

The recommended policy rate from Bullard’s simple Taylor-type policy rule calculation is 3.5%, while the current value of the policy rate is 37.5 basis points. “One concludes that the current policy rate is too low by about 300 basis points, according to this calculation,” Bullard said.

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