MNI POLICY: Lower Inflation Behind FOMC Rate Dissent: Bullard

     LONDON (MNI) - Falling personal consumption inflation and lower

market-based inflation expectations were among the reasons to dissent against

the Federal Open Market Committee decision to keep the Federal Funds rate

unchanged, St. Louis Federal Reserve President Jim Bullard said in a statement

published Friday.

     "In my view, lowering the target range by 25 basis points to 2% to 2.25%

would have been the most appropriate course of action," Bullard said

     He noted that both the core and headline personal consumption expenditures

(PCE) inflation measures had fallen sharply this year, presently some 40 to 50

basis points below the FOMC's 2% inflation target. He also pointed to

market-based measures of inflation expectations, which are also markedly lower. 

     In dissenting, Bullard said the forces that are keeping inflation below

target are "unlikely to be solely transitory". 

     Bullard acknowledged unemployment is low by historical standards, but saw

little evidence it posed a significant inflation risk. Alongside that, he saw

slow domestic growth for the remainder of the year, with uncertainties over this

outlook increased.

     "In light of these developments, I believe that lowering the target range

for the federal funds rate at this time would provide insurance against further

declines in expected inflation and a slowing economy subject to elevated

downside risks," Bullard said. 

     "Even if a sharper-than-expected slowdown does not materialize, a rate cut

would help promote a more rapid return of inflation and inflation expectations

to target," he added.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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