Where I think Mr Bullard begins to go off course is in treating the Fed’s behaviour like a zero-interest-rate peg. Yes, interest rates have been below 0.5% for nearly eight years, and the Fed has consistently promised to raise rates gradually. But it has promised to raise rates gradually, which is not the sort of thing a zero-rate targeting central bank would do. More importantly, markets have believed that the Fed would raise rates. When the fed fund futures contract for July 2016 began trading back in 2013, markets reckoned that the interest rate set at the July meeting would be in the neighbourhood of 1.5% to 2%. That was in line with the dots published by the Fed at the time. The Fed told markets that rates were going up, and markets saw no reason to disbelieve.

go off course：針路をそれる

As it turned out, both markets and the Fed were far too optimistic; over time the expected path of rate hikes has been both pushed forward into the future and it has flattened. Markets now think that the fed fund rate will be no higher than 1% three years hence. Maybe this shift has occurred because the Fed has signalled more strongly that it is pursuing a zero-rate peg, but I doubt it; in every published projection since 2013, the dots have continued to rise up to some “normal” rate well above zero.

As it turned out：後でわかったことだが、・蓋を開ければ

I would argue that Mr Bullard is wrong; it is not the case that the Fed is choosing low rates and inflation expectations are therefore converging toward a low level. I would argue that the Fed has been targeting very low inflation, and falling inflation expectations imply much lower interest rates in future.

This dynamic is there back in 2013. In its projections the Fed indicates that rates will rise steadily, even as it projects that inflation will be extraordinarily low, just over 1% in 2013, converging, finally, toward 2% by the end of 2015. Essentially every set of Fed projections since then has shown the same thing. It allowed its QE programmes to end despite too-low inflation, and it raise its interest rate in December despite too-low inflation. The Fed has signalled very strongly that markets should expect inflation to remain at very low levels, indeed, below target. It would be shocking if inflation expectations hadn’t trended inevitably downward.

Now return to the Fisher equation. If the global real interest rate is in the neighbourhood of 0% and expected inflation is in the neighbourhood of 1%, that suggests the Fed will have an extremely difficult time raising nominal interest rates beyond 1%. Mr Bullard has the regime right, but the causation wrong. The Fed has driven the economy into this rut in its determination to keep inflation low.

causation：因果関係・相関関係
rut ：轍・マンネリ

Is there a route out? Ironically, Mr Bullard’s low dots might provide a path. Where in the past the Fed has promised to raise rates even as inflation stays low, it could instead promise to keep them low no matter what, even if, and indeed until, inflation rises above the target. If the Fed wants higher nominal rates in a world of low real rates, it must cultivate higher inflation.

cultivate：育む

What is needed most, though, is for the Fed to remember that job one is to coordinate the market’s expectations. Mr Bullard gets one very important thing absolutely right: there is no normal nominal rate to which the economy is bound to converge. The Fed can choose whether nominal rates get stuck near zero or rise to a higher, safer level. Right now, unfortunately, it is steering the American economy firmly into a low-rate rut.

steering：舵をとる

木曜日。この記者はNeo-Fisherianの等式では金利が上がればインフレもそれに伴うということを支持していて、１２月には関係する諸国に金利が低くても、アメリカは金利を上げるべきだと言っている。残念ながら、今のアメリカの経済は低成長の中にあるのでそれができない。

昨日は海野塾があった。２日間続けて夜の懇親会があったので、昨晩は楽しかったが、しんどかった。今日は大島さん、曽田さん、内藤さんとの会食がある。３日目なので、きついなあ。ではまた明日。