Fed's Bullard says he doesn't want repeat of mechanical pace of interest-rate hike
PHILADELPHIA (MarketWatch) - The Fed's pace of subsequent interest rate hikes after the first move will be gradual but should not be "mechanical, the way it was from 2004-2006," said St. Louis Fed President Jim Bullard, on Friday. With a rate hike after the Fed's meeting on Dec. 15-16 a near certainty, economists are wondering about what comes next. In 2004-2006, which was the last tightening cycle, the Fed hiked interest rates by 25 basis points at 17 straight meetings. "I am fairly certain that was not optimal monetary policy," Bullard said during questions after a speech at the Philadelphia Fed's policy conference. At the time, the Fed was very pleased with itself, but the policy turned out to be "a global macroeconomic disaster," Bullard said. By the time the Fed got up to relatively normal policy rates, the housing bubble burst, leading to the financial crisis and the subsequent recession. "I think we need to be far more cognizant of the data this time around. We need to be willing to pause if the situation warrants but we also need to speed up the process of normalization if that situation warrants," he said. In addition, the Fed has to watch out for asset bubbles and can't wait for a bubble "to explode," he said.
