Fed's Bullard, Kashkari Favor Holding Interest Rates Steady
09 January 2020 - 11:04PM
Dow Jones News
By Michael S. Derby
Two regional Federal Reserve leaders said on Thursday they saw
no reason to change short-term rates any time soon.
In a speech in Madison, Wis., Federal Reserve Bank of St. Louis
President James Bullard said, "The current baseline economic
outlook for 2020 suggests a reasonable chance that the soft landing
will be achieved" after the central bank lowered interest rates
three times in 2019 to cushion the economy against a possible
downturn. He told reporters after his speech "we should wait and
see what the effects are" before tweaking monetary policy
again.
Speaking on Fox Business Network, Federal Bank of Minneapolis
President Neel Kashkari also said he sees no reason to alter the
current course of monetary policy. He told the network he'd hold
steady "for the foreseeable future, the next six months, next year,
but it will depend." He added he would be in the camp of favoring
"more accommodation" if "inflation continues to weaken or inflation
expectations continue to slide."
The two officials have long been the central bank's most robust
supporters of keeping rates low and steady. While both have
acknowledged strength in labor markets, they have argued that
rock-bottom jobless numbers need not call for higher short-term
rates as long as inflation pressures are negligible.
Mr. Bullard held a vote on the rate-setting Federal Open Market
Committee last year and was an early advocate for what became three
rate cuts over the later part of the year, ultimately leaving the
central bank's target rate at a range between 1.50% and 1.75%. Mr.
Bullard won't vote this year due to the rotation of regional Fed
leaders, but Mr. Kashkari will.
The Minneapolis Fed leader said in the interview that "now that
we're in a pause mode, I think we're in a much better position. And
if the labor market continues to draw people back in, wages
continue to rise, eventually that should bleed through to help and
get inflation back to our 2% target."
Mr. Bullard was upbeat in his remarks in Madison. He said trade
uncertainty, while elevated, has abated somewhat. He added that
while Middle East tensions have risen and could push up oil prices,
the U.S. will be more resilient in the face of any possible energy
shock. Mr. Bullard noted the U.S. is more energy efficient and
produces more of its own energy now, which protects it somewhat
from higher oil prices.
Mr. Bullard also said, "U.S. monetary policy is considerably
more accommodative today than it was as of late 2018." What's more,
those rate cuts have had an outsize impact because financial
conditions have eased by more than would be indicated by the
central bank's rate cuts last year, which totaled three-quarters of
a percentage point, he said.
The Federal Open Market Committee's "adjustment toward lower
rates in 2019 may help facilitate somewhat faster growth in 2020
than what might have otherwise occurred," Mr. Bullard said. The
rate cuts can be seen as "insurance against the possibility that
nonmonetary factors could have larger-than-expected negative
effects on growth."
The two regional Fed officials spoke after an appearance earlier
in the day be the Fed's second-in-command, Vice Chairman Richard
Clarida. He said "monetary policy is in a good place and should
continue to support sustained growth, a strong labor market and
inflation running close" to the Fed's 2% target, in an appearance
before the Council on Foreign Relations in New York.
Write to Michael S. Derby at michael.derby@wsj.com
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
January 09, 2020 17:49 ET (22:49 GMT)
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