Citing weak inflation expectations and weak economic reports, St. Louis Fed’s Bullard says expected rate hikes ‘aggressive’.

The Fed’s expected plans for rate increases may be too fast for an economy that has shown recent signs of weakness, St. Louis Federal Reserve President James Bullard said on Friday, making the case for a continued go-slow approach as inflation progress stalls.

A recent dip in inflation and inflation expectations means the Fed may not make as much progress as expected toward its inflation target, and at a time when risks are increasing that political gridlock in Washington will continue.

Expectations that tax, regulatory and other changes may boost growth have buoyed business confidence and markets since the start of the year, but are looking less likely as the Trump administration faces continued controversy.

Bullard said that recent events in Washington, on their own, have not changed his expectations for an economy anticipated to slog along at a 2 percent annual growth rate. But they have coincided with weaker inflation, and a dip in long-term bond yields that seem counter to the Fed’s faith it should continue to raise interest rates, Bullard said.

Inflation readings “are weak, they’ve come down and they are too low for the Fed to reach its inflation target,” Bullard said in comments at the Association for Corporate Growth. “They’ve gone in the wrong direction and a little bit too sharply for comfort.”

Fed Clueless

These continual debates show the Fed is clueless about where interest rates should be. Of course, that has long been proven given the dot-com and housing bubbles the Fed directly sponsored.

I don’t know where the rate should be and they don’t either. What I do know that they don’t is the Fed blew yet another bubble.

The current bubble is not related to technology or financials. It’s closer to an everything bubble.

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Mike “Mish” Shedlock