Federal Reserve Bank of St. Louis President James Bullard, a voting member of the Federal Open Market Committee this year, said using Fed communications to pledge rates will stay near zero may prove to be detrimental. While some people say rates near zero will accelerate inflation, such an interest rate policy may also cause a broad-based decline in prices, he said.
“Under current policy in the U.S., the reaction to a negative shock is perceived to be a promise to stay low for longer, which may be counterproductive because it may encourage a permanent, low nominal interest rate outcome,” he said in a paper released by the St. Louis Fed.
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