Fed's Bullard Admits "Missing Dot"; Swings From Uber-Hawk To Ultra-Dove

When the all-important 'Dot-Plot' was unleashed this week by The Fed, we noticed two things: first, a new ultra-dovish member had appeared, and second, one member was 'missing' from the longer-term estimate. We now know who that new "Kocherlakota' is - none other than previously uber-hawkish Jim Bullard. From his March "raise rates or face devastating bubbles" speech, Bullard now believes that one rate hike is enough for at least the next two-and-a-half years... and these are the people that the mainstream media dote on as all-seeing oracles?

On Wednesday, when Janet's jabbering crushed Fed credibility further into the dirt, we noted:

Since everyone is focused on the dot plot, here it is, and while Kocherlakota is gone, he has been replaced with a new Kocherla-Dota as someone is dragging on the new low 2017 and 2018 dots (and is entirely missing from the longer-term dots): it appears a new Fed uberdove has emerged...


Now we have an answer, as Bloomberg reports, St. Louis Federal Reserve President James Bullard is the missing dot.

When the Fed released its economic projections in Washington on Wednesday, one of the 17 officials sitting around the table didn’t put forth an estimate for a long-run interest rate projection, displayed in the Fed’s so called “dot plot.” In a statement on Friday, Bullard made it clear that it was his -- the St. Louis Fed is switching to a new forecasting style that doesn’t incorporate a long-run estimate.


“The forecast simply stops at 2.5 years,” Bullard said in the statement. Given his current outlook, Bullard expects trimmed-mean inflation of 2 percent, unemployment of 4.7 percent, and output growth at 2 percent over the 2.5 year horizon. He sees 63 basis points as the appropriate rate policy path over the forecast horizon, indicating that the lone official projecting one increase this year and none for 2017 and 2018 was also him.




Bullard, in his statement, said that the usefulness of the model involving long-run forecast may have come to an end “in the last year.” He noted that real output growth, unemployment and inflation may be at values that could be sustained over the forecasted horizon, provided there are no shocks, but said the economy does not converge toward a single steady state in the long run -- multiple regimes can evolve, depending on factors like productivity growth.


As a result, he says the fed funds rates should remain at 63 basis points during the remainder of his forecast. The current target rate is 25 to 50 basis points.


"An older narrative that the bank has been using since the financial crisis ended has now likely outlived its usefulness, and so it is being replaced by a new narrative. The hallmark of the new narrative is to think of medium- and longer-term macroeconomic outcomes in terms of regimes," Bullard said.

Which is all fine and dandy - and not entirely unexpected from The Fed... except that in March, this is what the now uber-dovish Bullard exclaimed...

Recalling the tech bubble in the 1990s and the housing bubble of the 2000s, he said: “Zero [interest rates] is too low in that kind of environment. I wouldn’t be comfortable with that. A zero rate would feed into an asset price bubble”.


“When asset bubbles start, they keep going until they blow up out of control with devastating consequences.”


The policy maker dismissed the softer US economic data that has emerged so far this year as temporary and said that the current low inflation was caused by cheap energy prices and would move up once the oil market stabilised.

Quite a different picture from today's...


And these are the people running the world?