Fed's Bullard: Markets Don't Agree With Fed Rate Hike Path
DOW JONES & COMPANY, INC. 9:12 AM ET 5/19/2017
Federal Reserve Bank of St. Louis President James Bullard warned Friday financial markets don't appear to believe the central bank is planning to continue forward with interest rate rises.
In a speech in St. Louis, Mr. Bullard didn't offer his own views on the interest rate outlook. But he did say that the performance of financial markets since the Fed's latest rate rise in March indicates traders and investors aren't buying into the central bank's view around two more increases in what is now a 0.75% and 1% overnight target rate range will happen this year.
"Financial market readings since the March decision have moved in the opposite direction" of what they should do when the Fed is seeking to boost borrowing costs, Mr. Bullard said, citing declining bond yield, weaker inflation expectations and lower odds placed on future rate rises.
"This may suggest that the [Federal Open Market Committee's] contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance," Mr. Bullard said in materials associated with his presentation.
Mr. Bullard isn't currently a voting member of the FOMC. He has since last summer been a vocal opponent of any push to raise rates on a sustained basis. The official believes the Fed has largely met its job and inflation goals and given that he doesn't see much that will change the economy's current path, the current level of short-term rates is about where it needs to be. Most of his colleagues disagree, however, and reckon the Fed needs about two more increases this year, with some central bankers thinking even more will be needed.
Mr. Bullard said in his speech that he sees little chance of an inflation break out in an economy where data has been somewhat weak over recent months.
"Labor market improvement has been slowing, perhaps close to a trend pace, given the current labor productivity growth regime," Mr. Bullard said. He added the performance of the job market suggests there is no reason to fear a surge in price pressures that would test the central bank's commitment to keeping inflation around a 2% rise level.
What's more, "even if the U.S. unemployment rate declines substantially further, the effects on inflation are likely to be small," he said.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
05-19-170912ET
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