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The Fed may cut interest rates if inflation remains disappointing: Bullard

HONG KONG (Reuters) – A further weakness in inflation could lead the US Federal Reserve to cut interest rates even as economic growth maintains its momentum, said James Bullard, president of the Federal Reserve Bank of St. Louis Wednesday.

James Bullard, President of the Federal Reserve Bank of St. Louis, speaks before the Foreign Correspondents' Hong Kong club in Hong Kong, China, May 22, 2019. REUTERS / Noah Sin

The risk of the missing Fed The 2% inflation target and the trade war are two key macroeconomic challenges for the Federal Open Market Committee (FOMC), he said in a presentation prepared for an audience at the Foreign Correspondents' Club (FCC) in Hong Kong.

The Fed kept interest rates stable at the beginning of May when Chairman Jerome Powell said there was "no strong reason" for a rate cut or increase.

But Bullard said Wednesday, "Adjusting downwards key rates, even with relatively good real economic output, can help maintain the credibility of the FOMC's inflation target for the future." attractive option if inflation data continues to disappoint, "he said.

Bullard and Charles Evans of the Chicago Fed, both voting members of the FOMC, have expressed concerns over the past few days that the Fed has failed to meet its target. Bullard said on Wednesday that another low-side miss in 2019 is in sight.

Bullard said that a future policy adjustment was due to in-depth data rather than a continuation of the earlier-than-normalized process this year, after 225 bps worth of near-zero migration.

He remained optimistic about the growth outlook.

Bullard has made comparisons with the period two and a half decades ago, when rates were raised by 300 basis points between early 1994 and early 1995, and the economy continued to boom in the second half of the 1990s without jeopardizing the prospects for a longer period of growth ,

The next FOMC meeting will take place on June 18th. [FED/DIARY]


Bullard believes that trade agreements will be reached in the near future, but warns that this will be "erected and maintained", subject to significant obstacles. "In the medium term, it could change" global trade patterns ". 19659004] These unresolved trade disputes and sub-target inflation "suggest that the FOMC must act cautiously to sustain economic expansion," he said.

Bullard said that from a macroeconomic point of view, "China should agree to anything "It will strengthen the credibility of trade in China and assure foreign investors that they can invest in China and receive appropriate treatment have a blue sky in front of them, "Bullard said 9659004] "It's not just the US that has doubts about China's credibility. Many global players around the world have found it difficult to do business. "

In an interview with Bloomberg TV, Bullard said on Wednesday that tariffs would have to remain" something like six months "with no prospect of a resolution in sight that strained the Fed's policy.

In his FCC remarks, he added that selling his large holdings of US Treasury bonds in China does not pose as much of a threat as it would be difficult to replace with other assets.

Edited by Jacqueline Wong

Our Standards: The Thomson Reuters Trust Principles.

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