Central Banks

Thursday, April 11, 2019 - 11:32

MNI POLICY: Fed's Bullard: Rate Cut Depends on Data


By Jean Yung

WASHINGTON (MNI) - U.S. growth and inflation indicators would need to deteriorate relative to the Fed's forecasts for officials to consider an interest rate cut, Federal Reserve Bank of St. Louis President Jim Bullard said Thursday, adding that he's uncertain about the economy's performance so far this year.

His remarks come on the heels of Wednesday's publication of the minutes of the FOMC's March meeting, in which a majority of officials said the current level of rates appear to be appropriate for the rest of the year.

"The (Summary of Economic Projections) is essentially saying if the economy evolves as expected, we would not make any changes in 2019," Bullard told reporters after giving a speech in Tupelo, Miss. "So you're going to need to see deviations on the downside on inflation or the economy, or both."

Following are other major takeaways from his Q&A with media:

--First-quarter data has indicated a slowdown relative to 2018, but Bullard said he would need more time to understand what's going on in the economy.

--Bullard advocated replacing the Fed's "patient" guidance with neutral language relatively soon as patience implies the Fed plans to continue raising rates back to a "normal" level on the back of favorable data. "I think that 'patient' connotes that we're still on track to some kind of normalization program, and I don't really think we are," he said. "We should give more neutral language."

--He would like to improve the SEP and dot plot to maintain transparency but allow the Fed to be more flexible and less committed to rate projections. He said the FOMC "felt compelled to follow through" on the December hikes because of its dot plot, despite a weaker outlook.

--He supports allowing reserves to continue to shrink after September, "gently exploring" the level of reserves demand by banks.

--Yield curve flatness puts the economy in a worrisome situation, but he's hopeful that better data will help steepen the curve.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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