That didn't take long. A month after the Fed's dreaded quarter-point interest rate hike, the markets tank and out come the talking heads to promise that whatever is bothering traders, Daddy will make it right.
Since the dramatic fall in oil began in 2014 Fed officials have insisted the impact on U.S. price levels would be temporary, bottoming out at some point and allowing inflation to rise to the Fed's 2 percent target.
Bullard said he has so far been willing to look beyond a slip in expectations as likely passing. But he is now worried the plunge in oil has unmoored inflation expectations as well, a fact that would make it more difficult for the Fed to lift inflation to its 2 percent target and could force officials to rethink the four quarter-point rate hikes expected this year.
"We are 18 months into this and I am starting to wonder if my story is the right one," Bullard said. "For me inflation expectations are a key factor and if they continue to decline I would put increasing weight on that."
He said he still thinks that continued strong job creation would "trump" weak inflation and a slowdown in the growth of gross domestic product. The outlook for four rate hikes still seems "about right," Bullard said.
But, coming from a Fed member who argued for an earlier rate hike and who is considered to be on the hawkish end of the spectrum, Bullard's comments reflect the depth of concern at the Fed that it may struggle to meet its inflation goal given the state of the global economy.
To sum up, if the world stays the way it currently is, interest rates will remain zero-ish. But since the world has gotten the way it is with rates at this level, just keeping them here doesn't seem like much of a fix. So when today's temporary post-Bullard pop fades and the global melt-down resumes, the response will be as follows:
Intimate that the Fed's balance sheet has contracted enough and maybe it's time for it to stabilize (translation: a new but modest round of QE).
When that fails, promise to expand the existing QE program by an amount calculated (via focus groups of hedge fund managers?) to turn the market's frown upside down.
When that fails, begin a new experiment with a catchy name like "QE for the people" or "debt jubilee" or NIRP, featuring the helicopter money that Ben Bernanke long ago promised to use in case of full-blown deflation -- along with a nice selection of capital controls to keep unruly savers, investors and other enemies of society in line.
At which point we'll be so deeply into uncharted territory that prediction becomes pointless, except as a form of entertainment.