Fed will want more uncertainty on rates after hike - Bullard

By Lindsay Dunsmuir

FORT SMITH, Ark. (Reuters) - The U.S. Federal Reserve will want more uncertainty surrounding possible interest rate moves on a meeting-by-meeting basis after an initial rate hike, St. Louis Fed President James Bullard said on Friday.

"I think we are going to return to an era where there is a bit more uncertainty about what the (Fed's policy-setting) committee is going to do meeting to meeting," Bullard told reporters after a speech to a business group in Fort Smith, Arkansas.

"I would welcome the return of that because to me that's normal monetary policy."

He added that the pace of monetary policy tightening should be data-dependent, and the U.S. central bank must be willing to switch course based on developments in the economy.

The Fed is widely seen increasing its benchmark overnight interest rate at its Dec. 15-16 policy meeting, with the debate already shifting to the pace of rate hikes going forward. The Fed has not raised rates in about a decade.

Bullard, a prominent Fed hawk who is ready to raise rates, said U.S. real consumption growth in the fourth quarter looked to be "fairly strong" and added that he expected the economy to expand for many more years to come, absent unexpected shocks.

"The economy is going to go into a boom period," Bullard said, citing the low U.S. unemployment rate, which is currently 5 percent. He added that the U.S. labor market was "basically back to normal" after the 2007-2009 financial crisis.

But the Fed should not repeat what it did during the 2004-2006 tightening cycle, when it raised rates at 17 consecutive meetings, Bullard said, emphasizing that policymakers should be more "flexible and reactive" to data this time.

That means less forward guidance from the central bank after its rates "liftoff" begins, said Bullard, who will be a voting member of the policy-setting committee in 2016 under a rotating system.

U.S. interest rate futures on Thursday suggested that traders saw a 72 percent chance of a rate hike next month, compared to 68 percent on Wednesday, according to CME Group's FedWatch.

Bullard also said on Friday the persistence of low real interest rates was "a puzzle," echoing comments he made last week where he entertained the possibility the United States is entering an era of permanently low rates, which he termed "permazero."

(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)