Three Themes for Monetary Policy in 2019

February 7, 2019

Speaking at St. Cloud State University in Minnesota, St. Louis Fed President James Bullard discussed three themes for monetary policy this year:

The Federal Open Market Committee (FOMC) may miss its 2 percent inflation target on the low side for the eighth consecutive year in 2019 based on current readings of market-based inflation expectations.
Labor markets have been performing well, but the feedback from labor markets to inflation has weakened considerably in the last two decades.
The Treasury yield curve has flattened significantly, and a meaningful and sustained inversion would send a bearish signal for the U.S. economy.

“Market-based signals such as low market-based inflation expectations and a threatening yield curve inversion suggest that the FOMC needs to tread carefully going forward,” Bullard said. “Through its normalization program, the FOMC has already been sufficiently pre-emptive over the last two years to contain upside inflation risk.”