MNI POLICY: Fed's Bullard Sees Rates at Zero for Years

By Jean Yung

     WASHINGTON (MNI) - St. Louis Fed President Jim Bullard said Tuesday

benchmark interest rates are likely to be stuck around zero over the medium term

despite his optimism the Covid-19 pandemic may be "behind us" by the end of the

year. 

     Rates are "low and projected to stay low, and that's appropriate," Bullard

told reporters on a conference call. "We are probably talking years as opposed

to months. That's certainly what markets are anticipating at this point, and I

see no reason to doubt their judgment." 

     Interest rates "will become important as we go forward," but for now

officials need to focus on making tests widely available to help contain the

pandemic and restore consumer confidence, Bullard said. 

     If the government can bring the pandemic under control and start to reopen

the economy, Bullard sees a rebound by the second half of the year. "For some

places it might make more sense to be opening up now, some other places might

want to wait quite a bit longer."

     --20% UNEMPLOYMENT

     Bullard estimated the unemployment rate to be between 15% and 20% or even a

little above 20% now, adding that the data might be skewed by people who lost

their jobs and aren't currently looking for work. That group would count as out

of the labor force in the Labor Department survey. 

     He said he "won't hazard a guess" on near-term unemployment but hopes "it

can come down substantially by the end of the year" if the pandemic is under

control. 

     On price level stability, the other half of the Fed's dual mandate from

Congress, Bullard said markets have so far shown optimism inflation is under

control. 

     TIPS break-evens are "lower, but not that much lower" given the situation,

Bullard said. Survey-based measures of inflation expectations may not reflect

the current situation well because they are less sensitive to event shocks, he

said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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