Banking Crisis

US In "Relative Boom"; Heading Back To Monetary Normality - Conference

Tom Burroughes, Group Editor, March 25, 2015

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The US economy is entering a “relative boom” with the unemployment rate heading below 5 per cent this year – under its long-term average – and the country should move gently away from its zero interest rate policy to stay ahead of events, one of the US Federal Reserve’s policymakers said yesterday.

The country is experiencing “boom times” compared with what it has been experiencing in recent years, while the US enjoys continuing “tailwinds” from the sharp fall in crude oil and low global bond yields, James Bullard, president and chief executive, Federal Reserve Bank of St Louis, said. He is also a member of the US Federal Open Market Committee, which meets to decide on monetary policy.

While some recent economic data has shown a slight slowing of growth, labor market figures have been strong, with the unemployment rate down to 5.5 per cent - which is around its long-term rate, Bullard said.

While the world’s largest economy has halted its quantitative easing policy for several months, investors are watching for signs that the Fed will start to move away from the ultra-accommodative monetary policy put in place since 2008. Already, perceptions that the US is likely to begin tightening policy ahead of the eurozone, for example, has seen the euro exchange rate fall to near parity with the dollar.

“These factors put us in a position of normalization for US monetary policy in 2015,” Bullard told TheCityUK conference in London yesterday. A zero interest rate policy is no longer rational in the circumstances, he said.

Even so, US monetary policy will remain relatively accommodative – when compared with history – for some time to come, he said. Other speakers at the same event said that while the US might be slowly emerging from its period of QE, other jurisdictions, notably the eurozone and Japan, are continuing to see heavy central bank purchases of assets in a bid to revive flagging economies.

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