MNI POLICY: Fed's Bullard: Rate Cut May Be Soon Warranted

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve may need to lower interest rates

soon to move inflation and inflation expectations back toward target and insure

against a slowdown in U.S. growth exacerbated by trade tensions, St. Louis Fed

President Jim Bullard said Monday. 

     "A downward policy rate adjustment may be warranted soon to help recenter

inflation and inflation expectations at target and also to provide some

insurance in case of a sharper-than-expected slowdown," he said in slides

prepared for the Union League Club of Chicago. 

     Inflation and inflation expectations remain below the Fed's 2% target,

"clearly concerning" for the Fed's credibility, Bullard said. 

     The inversion of some portions of the yield curve has also become more

pronounced recently, he said. "Financial markets appear to expect less growth

and less inflation going forward than the FOMC does, a signal that the policy

rate setting may be too restrictive for the current environment." 

     Meanwhile, global trade conflicts have escalated and will likely chill

global investment and growth, though the direct effects on the U.S. economy are

"relatively small," he said. Though Fed policy cannot react to day-to-day

updates in trade negotiations, "an environment of elevated uncertainty

surrounding the global trade regime may be a negative factor for global growth

that could feed back to U.S. macroeconomic performance." 

     A rate cut would help inflation return to target, even if the

sharper-than-expected slowdown does not materialize, he said. Bullard votes on

rates this year on the FOMC and has long been one of the more outspoken

advocates for keeping rates low. 

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

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