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--5 Things We Learned From St. Louis Fed Bank President James Bullard's Q&A
By Sara Haire
WASHINGTON (MNI) - St. Louis Federal Reserve Bank President James Bullard
participated in a moderated Q&A at the Ascension Health Management Annual
Conference in St. Louis on Thursday. Here are 5 things of note from the speech.
- President Bullard repeated his stance of favoring leaving rates where
they are right now, contrasting with the FOMC's June SEP that indicated one more
rate hike in 2018 than what was reported in March. He noted that market
expectations forecast inflation to be lower than the Fed's estimates, suggesting
that the Fed is in "good shape" to slow down raising rates or even halt rate
increases. He explained that the Fed should watch "how the data evolve" and not
necessarily follow the "prescribed further normalization," he said to reporters.
Bullard is currently a non-voting member of the FOMC, but will be a voting
member in 2019.
- "There could be an upside to the trade rhetoric," Bullard said, but noted
that the U.S. is likely to be along for a "bumpy ride" as negotiations continue.
He explained to reporters after his discussion that he is "hearing full-throated
angst" from business contacts within his district regarding trade uncertainty,
and some are using the imposition, and even possible imposition, of tariffs "as
a reason to raise prices," he said. While he did acknowledge the risks and the
positive benefits that may come from renegotiated trade policies, he remains
skeptical that trade negotiations will lead to anything meaningful, and that we
could end up with essentially the same regime.
- The potential for a yield curve inversion is a "key near-term risk" for
the Fed to consider according to Bullard. The St. Louis chief has been very
vocal in warning against the potential for the yield curve to invert. If it does
invert, there could be a recession on the forefront according to studies done on
the correlation, Bullard explained. The Fed needs to "respect the forecasting
power" of this indicator going forward, he said. This risk should cause slower
rate hikes until it is clear that inflation or long-term yields are on the rise,
- The historically low unemployment rate, now at 3.8%, has caused some
economists and policymakers to speculate whether inflation will begin to pick up
in the near-term as the Phillips curve has been an indicator of such a reaction,
but Bullard disagrees. The Phillips curve has been nonlinear lately, which
Bullard explained shows that the correlation between inflation and the
unemployment rate may not be as strong anymore. He said that unemployment could
continue to go lower without inflation having a large reaction.
- Bullard noted that the "best bet" for the U.S. is that it will remain in
a low inflation, low growth regime at least for a couple years, later explaining
to reporters that despite the high estimates for 2Q GDP, 2019 and 2020 estimates
for GDP show growth returning to more normal levels. The fiscal stimulus is
likely to have a temporary boost for growth in the near-term, but will fizzle
out in the longer-term. Bullard explained that the Fed should not "react with a
permanent rate increase to a temporary growth situation."
--MNI Washington Bureau; +1 212-800-8517; email: firstname.lastname@example.org
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