Bullard said that two pillars of the Federal Open Market Committee’s (FOMC) 2015 case for monetary policy normalization have changed in 2016. In particular, he noted that market-based inflation expectations have fallen further and that the risk of asset price bubbles over the medium term appears to have diminished. “These data-dependent changes likely give the FOMC more leeway in its normalization program,” he said.
He discussed whether inflation expectations have fallen too far for comfort and raised concerns about central bank credibility with respect to the inflation target. He cited the example of the euro area, where 10-year government bond yields have fallen to the levels of Japan and Switzerland, “arguably because the credibility of the inflation target has eroded,” he said.
(source: Federal Reserve Bank of St.Louis)
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