StL Fed's Bullard: Data Calls Into Question Infl Return to 2%

--Current Policy Rate 'Likely To Remain Appropriate Over Near Term'

--Tighter Labor Market Unlikely to Have Significant Impact on Infl

By Karen Mracek

     WASHINGTON (MNI) - St. Louis Federal Reserve Bank President James Bullard

expressed concern Monday that recent weakness in inflation could be a sign it

won't return to the Fed's 2% target anytime soon, and therefore the policymaking

Federal Open Market Committee should stay on hold when it comes to rates.

     "Recent inflation data have surprised to the downside and call into

question the idea that U.S. inflation is reliably returning toward target,"

Bullard said in slides prepared for the America's Cotton Marketing Cooperatives

2017 Conference in Nashville.

     With weak inflation data and the continuation of a low growth regime, "The

current level of the policy rate is likely to remain appropriate over the near

term," he said.

     For the most part, Bullard reiterated views he expressed Aug. 1 during an

exclusive interview with MNI, when he said "Given the inflation outlook, which

has deteriorated in 2017, I would not support further moves in the near term."

     Bullard said Monday that while the second quarter GDP "showed some

improvement," it was "not enough to move the U.S. economy away from a regime

characterized by 2% trend growth." 

     This reaffirms his view the U.S. economy continues to be in a low growth,

low inflation, low interest rate environment. "The 2% growth regime appears to

remain intact," he said.

     Bullard took note of the upgraded world economic outlook by the

International Monetary Fund last month but said "these upgrades do not add up to

a meaningful upgrade at the global level."

     However, the better growth around the world has had an impact on the U.S.

dollar. "The value of the U.S. dollar has declined in 2017, a consequence of the

brighter growth outlook for Europe and expectations for a somewhat more hawkish

European Central Bank," he said.

     Global commodity prices have also been an important factor affecting U.S.

headline inflation, he said. "Crude oil prices, in particular, tend to influence

the headline inflation rate," he said, adding that global commodity prices are

sensitive to perceived and actual supply and demand developments in the global

crude oil market.

     While other factors are weighing on inflation, one area which is unlikely

to have an impact is tighter labor market conditions.

     Recent labor market outcomes "have been relatively good," Bullard said

pointing to a 4.3% unemployment rate in July. Still the tighter labor market is

unlikely to move inflation up much.

     "Even if the U.S. unemployment rate declines substantially further," he

said, "the effects on U.S. inflation are likely to be small."

--MNI Washington Bureau;tel: +1 202 371-2121; email: karen.mracek@marketnews.com

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