Fed's Bullard: Wall Street and forecasters have been wrong so far

Federal Reserve Bank of St. Louis President James Bullard presented says that Wall Street and economic forecasters have been wrong so far.

He said that Gross Domestic Product will be down around 2.5% this year.

He noted that Monetary policy has been exceptionally effective and that the economy as a whole has adapted very well.

He explained that there is a need to manage the current wave of infections carefully.

He hopes to get a better read on inflation in 2021.

He said that the fiscal package designed for bigger shock than what occurred.

Prior statements

In prior comments earlier this month, 

During a presentation and webinar for the Economic Club of Memphis last Friday, Bullard said there has been progress in managing the global health crisis, but substantial risks remained.

He also noted that U.S. macroeconomic news from May through October surprised dramatically to the upside, which suggests that the business sector has rapidly adjusted to the pandemic.

In addition, he said, “US monetary and fiscal policies have been exceptionally effective and were designed for a larger shock than the one that has occurred.”

He cautioned that downside risk remains substantial, and continued execution of a granular, risk-based health policy will be critical to maintain economic momentum.

Market implications

The prior Federal Reserve meeting has little consequence for the FX space as the concentration was elsewhere with the US election.

However, the next meeting around will be far more compelling for investors.

We could see a change to QE very soon, potentially as soon as the December meeting, or even before if the Fed grows impatient with the deadlock at Congress, frustrated with an elusive fiscal stimulus package.

''On the policy rate, consistent with the Fed’s new policy framework and September’s Summary of Economic Projections/dot plot, we expect Fed funds to remain anchored at the lower effective bound likely through 2023,'' analysts at National Bank of Canada argued.