Fed's Bullard presses on need for rates rises to prevent bubbles

A Federal Reserve policy maker said the US was headed to "boom time" lows in unemployment and that this reinforced arguments for higher interest rates.

James Bullard, president of the St Louis Federal Reserve, said that unemployment, which stands at 5.5pc, was headed to the 4 per cent range and that he expected the economy to rebound from the soft readings in the first quarter.

If the Fed failed to raise interest rates from their emergency levels of near zero it could lead to heightened risks of asset price bubbles - something that had plagued the economy for 20 years, he said.

"You look at the unemployment chart or the labour market indicators chart and it is saying boom times ahead, more or less," he said in a press briefing.

"So boom times ahead and us already charting low interest rates sounds risky from a bubble perspective."

Speaking earlier at the annual Hyman P Minsky Conference, he said "Now may be a good time to begin normalising US monetary policy so that it is set appropriately for an improving economy over the next two years. Even with some normalisation, monetary policy will remain exceptionally accommodative."

Mr Bullard, a self declared hawk on the Federal Open Market Committee, said the US is likely to maintain a pace of around 3 per cent growth in the medium term, in part on the back of tailwinds of the persistent decline in oil prices and the introduction of quantitative easing in the euro area, which has driven US bond yields lower.

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One policy rule cited by Mr Bullard - Taylor 1999 - suggests that the Fed should have already raised rates, he said. "In this sense the Committee is already exhibiting considerable patience" he said.

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