MNI POLICY: Fed Bullard mum on rates, warns of trade friction

By Evan Ryser

     WASHINGTON (MNI) - St. Louis Fed's James Bullard on Tuesday said additional

monetary policy action may be desirable but he is waiting to see the "long and

variable effects of monetary policy" over the last nine months that are now only

beginning to impact macroeconomic outcomes.

     "U.S. monetary policy cannot reasonably react to the day-to-day

give-and-take of trade negotiations," Bullard said in a speech in Washington

referring to fluctuations in the market after a flare-up in the dispute between

the United States and China.

     "I do not expect this uncertainty to dissipate in the quarters and years

ahead," Bullard said. "The bottom line is that U.S. monetary policy is

considerably more accommodative today than it was as of late last year," Bullard

said in Washington.

     While Bullard pressed for better understanding of the effects of previous

Fed policy moves, he warned of the effects of protracted trade uncertainty.

"This is likely chilling global investment and feeding into slower global

growth," he said, adding that the direct impact of trade restrictions on the

U.S. economy is relatively small, but the effects through global financial

markets may be larger.

     Bullard also addressed continued muted inflation pressures. He noted that

both inflation and inflation expectations are below the FOMC's 2 percent target.

"This is occurring despite more than two years of upside surprise in the U.S.

real economy," he said. "This is clearly concerning for the credibility of the

inflation target."

     Bullard also noted the Treasury's inverted yield curve. "The 10-year yield

remains above the two-year yield, likely because markets are anticipating future

policy moves by the FOMC, and so we are not seeing an intensification of the

yield curve inversion so far," he said.

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

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