MNI POLICY: Fed's Bullard: 'Steady As She Goes' For Rates

By Jean Yung

     WASHINGTON (MNI) - With the U.S. economy in a "good position" and fears of

coronavirus gutting global growth yet to materialize, Federal Reserve Bank of

St. Louis President Jim Bullard told reporters Tuesday that U.S. interest rates

are "steady as she goes." 

     Futures markets are rightly pricing in "some tail risk" from the Chinese

outbreak but the epidemic will likely subside within one to two months as in

past episodes, he said.

     "Markets have what's called a peso problem, where they have to decide about

the low probability of a high impact event, so I think that's skewing the

forecast a little bit toward Fed easing," he said. "What will happen is when the

virus comes under control, which is my base case, then that will come out of the

market, probably." 

     On rates, "I can say steady as she goes right now. We can take the data as

it comes in," he said. 

     Bullard also repeated his call for the FOMC to create a standing repo

facility to facilitate control of benchmark short-term rates. The facility,

which would exchange cash for Treasuries or other acceptable collateral, would

meet an international standard on market operations and avoid stigma associated

with borrowing through the discount window. 

     "The reality of trying to destigmatize the discount window would be very

difficult," he said. "My preferred route is to start a new facility." 

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

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