June 1, 2018
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St. Louis Fed President James Bullard discussed reasons for caution in raising the fed funds rate target further in the near term. During his interview with Bloomberg Daybreak: Asia, he shared his views on rising trade tensions, low inflation expectations and the possibility of yield curve inversion.
“The trade talk is increasing uncertainty in the economy and when I talked to people in my District, back in the Midwest, or people over here in the Far East, everyone’s talking about how the trade talks might change world trade arrangements,” he said. “However, I think the proof’s in the pudding. It really comes down to what is actually agreed upon as far as trade arrangements. And I’m not sure in the end that all that much is going to change.”
Bullard also reiterated his view that the U.S. policy rate appears to be neutral, meaning it is putting neither upward nor downward pressure on inflation. (For more on this topic, see Bullard’s presentation “A Cautionary Note on U.S. Monetary Policy Normalization” delivered on May 29, 2018.)
“If we keep going up from here, we’re going to turn restrictive – possibly in a situation where inflation hasn’t made it all the way back to target yet,” he said. “I think inflation expectations are still a little weak here for us to be moving into a restrictive mode. What we should do is stay where we are and let inflation expectations re-center on our 2 percent inflation target.”