What's going on?

James Bullard, a senior US Federal Reserve official, told the Financial Times yesterday that the Fed �should get on with normalization� of interest rates (which means he is advocating for rates to be increased) and that by leaving rates at zero it is risking exacerbating asset price bubbles.

What does this mean?

The Fed must determine the base interest rate for the US based on its expectations for the economy. Low interest rates support economic growth, but if rates are left too low for too long, then asset bubbles can develop. This happens because low interest rates make it cheap to borrow money. This is good as long as the borrowing is being used for productive economic purposes (like building a factory that will employ workers, for example), but it can also lead to speculative investing like the housing bubble that preceded the 2008 market crash. As we saw in 2008, once these asset bubbles crash, the effect on the economy can be devastating.

Why should I care?

The Fed will likely raise rates some time this year; this has already been widely signposted by Fed officials and the market has largely priced it in. Last week�s Fed meeting was more �dovish� than expected, meaning that the Fed will likely wait slightly longer than the market expected before raising rates. Bullard appears to disagree with the Fed waiting; he is pushing for a rate increase sooner than, it would appear, the Fed is prepared to act. However, Bullard is a non-voting member of the Fed this year, meaning that his view is only just that: a view. Do expect to hear lots of debate, though, about when the right time is for the Fed to enact the first rate rise since 2008. The longer they wait, the better it likely is for US stock prices, at least in the short term.