Washington Post: Let’s start with Friday’s [November] jobs numbers. Everyone is saying this is cementing the Fed’s liftoff in December. What do you think?
Bullard: I thought it was is a very strong report. I think the monthly average of 218,000 is very promising for the U.S. economy. I think it shows it was probably a mistake to delay from September, when people were concerned there was a slowdown in the fall. That hasn’t really materialized. I will argue for a move in December. I don’t want to prejudge what the committee might do, but that will be my position.
WP: An actual mistake not to move in September? What are the consequences, then? Is the Fed already behind the curve?
Bullard: The timing of the rate hike is probably not critical, and so we can certainly make up for the fact that we didn’t move earlier.
WP: You guys have been saying for a long time that it’s not just the first increase that matters: It’s the entire path. Let’s talk about what gradual means.
Bullard: There’s been so much pressure on this first move, and you can kind of understand it because we haven’t moved since December 2008. That’s seven years. We’ve been pinned down to zero. If we do move in December, it will certainly be momentous. It will be a great signal I think for the U.S. economy: It does signal confidence. It does signal that we can move away from emergency measures, finally.
But you’re right, the debate will immediately turn to how will normalization proceed? My main concern about that is we remain data dependent, and we do not get locked into a mechanical pace of rate increases the way that we did in 2004 to 2006.
In that sequence, for those that remember it, we raised the funds rate a quarter percent at every meeting for 17 meetings in a row. I’m virtually certain that was not optimal policy.
At the time, we were congratulating ourselves that this was a very organized way to go about the normalization process. But in the end, we really got burned with the huge crisis and a housing bubble that ran far out of control. And when it collapsed, it caused a major global macroeconomic disaster. So I don’t think we want to be in the position of trying to telegraph a mechanical rate hike path the way we did in that situation.