MNI EXCLUSIVE: Bullard Not Leaning Either Way on Fed Policy

--Optimistic Companies Digested "One Time Shock" On U.S. Trade Policy

--Revision to Fed's Framework May Lean Toward Average Inflation Targeting

By Jean Yung and Evan Ryser

     WASHINGTON (MNI) - St. Louis Fed President Jim Bullard told MNI on Monday

that monetary policy had an "important realignment" this year and he's content

to see how it ripples through the economy before calling for further

adjustments.

     "We made a lot of changes to monetary policy during 2019. Given the long

and variable lags in monetary policy, we would expect those to come online

during 2020," Bullard said in a telephone interview. 

     "You'd like to wait and see what those effects are going to be and what the

data is going to bring to us. I wouldn't be leaning in any direction at this

point," he said. 

     The U.S. economy is "in a good place," he said, with employment at a

50-year low. Consumption conditions are still "very good," even as retail sales

have disappointed a bit. Ratification of a new U.S.-Mexico-Canada trade

agreement would be "very positive" while a first-stage deal with China "is an

important first step," Bullard said, adding he's optimistic on global growth. 

     For 2020, Bullard expects 2% growth and hopes to see inflation hit or

exceed 2%. Core PCE at 1.6% is "pretty low," he said, and "to the extent we have

risk, it is that we'll continue to miss our target to the low side." 

     After years of failing to hit its 2% inflation target, the idea of adopting

a strategy of making up for past inflation misses by letting inflation run above

2% for a while when the economy is doing well has also gathered more support,

Bullard said. 

     -- REDUCED TRADE UNCERTAINTIES

     Bullard sees continuing uncertainty over trade, adding that a "phase one"

U.S.-China deal belies some of the deeper conflicts. "It would be perhaps naive

to think any single agreement would settle all issues between the two

economies," he said.

     However, he's optimistic that companies have digested the "one-time shock"

of a more aggressive U.S. administration, which dampened global investment in

2019. Businesses are "not sitting on their hands" and have developed different

strategies such as diversifying supply chains after 18 months of the trade war,

Bullard said. 

     "I'm hopeful they make their adjustments accordingly" and global growth

will pick up, he said. 

     --INFLATION MAKE-UP STRATEGIES

     Even as unemployment plumbed half-century lows this year, wage and price

level growth have remained muted, prompting an evolution in thinking about

inflation targeting strategies, Bullard said. 

     Changes to the Fed's statement on longer-run goals and policy strategy at

the conclusion of the framework review in the first half of 2020 "could lean in

the direction of average inflation targeting," Bullard said. But the specifics

of any changes might not be codified due to the difficulty of getting a

committee of more than a dozen officials to agree to every detail. 

     But whether or not the Fed tweaks its policy framework in writing, "in the

minds of policymakers, there's a lot more sympathy towards these types of ideas

than there was 20 years ago," Bullard said. 

     "In that sense, global central banking is very much evolving in different

directions." 

     -- REPO PLAN TO BE EFFECTIVE AT YEAR-END

     Bullard expressed confidence in the New York Fed's ability to qualm funding

pressures in repo markets around year-end.

     "We have been effective since September in reorienting our policy to pay

close attention to liquidity issues and money markets. It seemed to work pretty

well," Bullard said.

     Once the new year begins, Bullard said he hopes to see more attention paid

to a standing repo facility.

     "It would probably end all discussion of all these issues about temporary

spikes in these markets," Bullard said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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