Bullard: Behind The Curve...But How Far Is Uncertain

St Louis Fed Pres Bullard's back-of-the-envelope Taylor Rule calculation on the Fed being about 300bp too low on rates (vs the current Fed funds midpoint of 0.375%) includes an assumed R-Star (real interest rate) = -0.50%; and current inflation = 3.6% (Dallas Fed trimmed mean PCE, as opposed to much higher overall headline PCE).

• "A higher value for R-star or a broader definition of inflation would suggest considerably higher recommended policy rate values, and the Fed would be further behind the curve."
• BUT he argues that because the 2Y Tsy yield is close to 2.50% due largely to Fed forward guidance, "this suggests the Fed is not as far “behind the curve,” although it would still have to raise the policy rate to ratify the forward guidance."
• In other words, the Fed tightening cycle has already gone a long way, but it still might be well behind the curve depending on one's assumptions.