MNI POLICY: Bullard: Fed Appears Set For Soft Landing in 2020

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve appears poised to achieve a soft

landing as the United States economy returns to its trend growth rate, St. Louis

Fed President James Bullard said Thursday.

     "The FOMC has a reasonable chance of achieving a soft landing for the U.S.

economy in 2020 following a large adjustment to monetary policy during 2019,"

Bullard said Thursday before the Wisconsin Bankers Association.

     Bullard, not a voting member of the FOMC in 2020, noted the slowdown in

2019 was widely expected because the economy tends to return to its potential

growth rate.

     The key risk was of a sharper-than-anticipated hard landing, he said.

     The FOMC's adjustment toward lower rates in 2019 may help facilitate

somewhat faster growth in 2020 than might have otherwise occurred, Bullard said.

"One could view this as insurance against the possibility that nonmonetary

factors could have larger-than-expected negative effects on growth."

     -- CONTINUING UNCERTAINTY

     Global trade policy uncertainty is likely to remain high over the medium

term, but firms are adjusting business strategies to remain profitable in the

face of this uncertainty, Bullard said.

     "Business strategy adjustment will make trade policy uncertainty less of an

issue in 2020 than it was during 2019," he said.

     -- ELEVATED GEOPOLITICAL RISK

     Bullard further noted renewed tensions in the Middle East in recent days.

One important macroeconomic impact could come to the U.S. economy through oil

price movements, he said.

     "Geopolitical risk is elevated, but oil shocks may be neutral on net for

the U.S., not negative on net as in much of the postwar era," he said.

     However, oil price shocks probably do not mean what they once may have for

the U.S. economy, due to lower oil intensity compared with levels in previous

decades, and due to higher U.S. oil production.

     "Intensification of geopolitical risk may mean higher oil prices, but the

ultimate impact of that on the U.S. economy may be approximately neutral given

lower oil intensity and higher production in the U.S. than historical levels."

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

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