Even the hawks are "cooing" these days.
St. Louis Fed head James Bullard has finally acknowledged that the U.S. economy is slowing. The eye-opening part of Bullard's Friday morning admission is this: He now says the U.S. economy's growth is so underwhelming that we may need no more than a single additional rate hike for the next 2.5 years.
As we've pointed out before, Bullard joins San Francisco Fed head John Williams in dialing back prior rate hike expectations. (Williams was perhaps the most ardent hawk, yearning for as many as five rate hikes in 2016.)
Oh how the mighty have fallen...
In a shocking mea culpa though, Bullard released a statement today about Fed forecasting and the U.S. economy saying:
"We are backing off the idea that we have dogmatic certainty about where the U.S. economy is headed in the medium and longer run. We are trying to replace that certainty with a manageable expression of the uncertainty surrounding medium- and longer-run outcomes."
Bullard now predicts that, “Output grows at a trend pace of 2%, but the unemployment rate remains quite low and inflation remains at 2%” over the next two-and-a-half years.
He even brought up the dreaded "R-word":
"We are currently in a no recession state, but it is possible that we could switch to a recession state. If such a switch occurred, all variables would be affected but most notably, the unemployment rate would rise substantially. Again, the possibility of such a switch does not enter directly into the forecast because we have no reason to forecast a recession given the data available today. The possibility of recession is instead a risk to the forecast."
And here's another interesting admission about the Fed's concern about "asset price bubble risk":
"The approach presented here also says little about asset price bubble risk, a factor that often enters the actual policy discussion."
Bullard's statement is an interesting read. Hopefully, we're moving toward a Fed that puts humility before dogma.
Time will tell.