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Free AccessREPEAT:MNI POLICY:Bullard Wants More Weight on Yield Curve
Repeats Story Initially Transmitted at 13:20 GMT Sep 5/09:20 EST Sep 5
By Jean Yung
WASHINGTON (MNI) - Federal Reserve Bank of St. Louis President James
Bullard on Wednesday called for the U.S. central bank to take financial signals
more seriously in determining how fast to lift interest rates, in particular the
shape of the yield curve and market-based measures of inflation expectations.
In a talk in New York, he laid out a strategy for extending the U.S.
economic expansion that "relies on placing more weight on market signals than
has been customary in past U.S. monetary policy strategy."
Financial markets have priced in a more dovish policy than indicated by the
Fed's forecasts. A relatively flat yield curve suggests that financial markets
"do not see excessive real growth or excessive inflationary pressure over the
forecast horizon," while TIPS-based inflation compensation data suggest markets
do not expect the FOMC to achieve its 2% inflation target over the next decade,
Bullard said.
"The empirical evidence on yield curve inversion in the U.S. is relatively
strong, and TIPS-based inflation expectations have generally been correct in
predicting subdued inflationary pressures in recent years," Bullard said.
"Therefore, both policymakers and market professionals need to take these
financial market signals seriously."
Bullard has repeatedly warned that the Fed should hold off on any more
increases in interest rates to avoid the risk of the yield curve inverting,
which has in the past signaled a potential recession. He believes maintaining
the current target range for the fed funds rate of 1.75% to 2% is appropriate.
The St. Louis Fed chief does not vote on interest rates this year.
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
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Why MNI
MNI is the leading provider
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