Federal Reserve

Fed's case for continued cheap money not compelling: Bullard

James Bullard, president of the Federal Reserve St. Louis
Katie Kramer | CNBC

St. Louis Fed President James Bullard said he argued against last week's decision by the U.S. Federal Reserve to hold interest rates steady, and felt other policymakers had not made a compelling case for yet again delaying a rate hike.

Bullard does not currently vote on the Fed's policy setting committee and thus could not join Richmond Fed chief Jeffrey Lacker in dissenting from the decision to hold rates near zero for at least another six weeks.

But he was sharply critical of the decision in remarks to a community banking group here.

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"The Committee has not, in my view, provided a satisfactory answer," to how near zero interest rates align with close to full employment and continued economic growth, Bullard said. Even though inflation is weak, rates will still be extraordinarily low even after an initial rate increase, Bullard said, and thus would continue to support economic growth and ultimately higher prices.

"The case for policy normalization is quite strong," Bullard said, contending that the Fed's dual employment and inflation objectives "have essentially been met."

Rather than clarify the Fed's direction, Bullard said last week's decision seemed to increase uncertainty about the direction of the U.S. economy.

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Bullard has been among the more vocal proponents of an earlier rate hike, though last month on the sidelines of the central bank's Jackson Hole summit in Wyoming he acknowledged that global market volatility might cause the central bank to hold fire.

However markets have appeared more stable in recent weeks, and Bullard said there seemed no reason to hold back.

"It is as if the Fed, upon making a single 25 basis point move, will suddenly be adopting a restrictive monetary policy," he said in a prepared presentation. "But this is far from the truth."

Thirteen of 17 Fed members last week said they still expect to hike rates this year, so Bullard's criticism may be only narrowly about timing. The Fed meets again in October and December to debate whether to begin raising rates.

But it also indicates a larger degree of division creeping into the central bank's discussions, as new concerns about low global inflation weigh against the progress the U.S. economy has made in lowering unemployment.

San Francisco Fed President John Williams said on Saturday in New York the decision last week had been a "close call."

In its statement, the Fed cited global risks as a main concern.

Note: Bullard will appear on CNBC's "Squawk Box" on Monday, Sept. 21 at 7am.