HONG KONG (Reuters) – Further weakness in inflation can shed light on the US federal reserve to cut interest rates, even though economic growth sustains its pace, said James Bullard, president of the Federal Reserve Bank of St. Louis on Wednesday.
James Bullard, President of the Federal Reserve Bank of St. Louis, speaks before the Foreign Correspondents & # 39; Club of Hong Kong in Hong Kong, China May 22, 2019. REUTERS / Noah Sin
Risk of the Fed Missing Its 2% inflation target and the trade war were two major macroeconomic challenges to the Federal Open Market Committee (FOMC) political setting, he said in a presentation prepared for an audience at the Foreign Correspondents Club (FCC) in Hong Kong.
Fed kept interest rates stable earlier in May, when chairman Jerome Powell said there was "no strong case" for either a cut or an interest rate increase.
But Bullard said Wednesday: "A downward adjustment of interest rates even with relatively good real economic performance can help maintain the credibility of FOMC's inflation target ahead."
"A key rate of this kind can be a more attractive option if inflation data continues to disappoint," he said.
Bullard and Chicago Fed's Charles Evans, both voting members of the FOMC, have in recent days expressed concerns about the Fed's lack of The ability to reach the goal Bullard said on Wednesday that another "low-side miss" is on the horizon in 2019.
Bullard said that a political adjustment in the future would be in response to incoming data, and not a continuation of the rate normalization process as has stopped earlier this year after 225 basis points worth of near-zero rises.
He remains keen on growth prospects.
Bullard made comparisons with 2-1 / 2 decades ago – as prices increased by 300 basis points between early 1994 and early 1995, and the economy still boomed in the second half of the 1990s – to emphasize that price normalization may have been achieved without harmful prospects for a longer period of time. kst.
The next FOMC meeting will be held on 18 June. [FED/DIARY]
Bullard expects trade deals to be reached in the short term, but warned that no significant barriers were "created and maintained," could change "global medium-term trading patterns".
These unresolved trade conflicts and substandard inflation "suggest that the FOMC must step cautiously to help maintain economic expansion," he said.
Bullard said that from a macroeconomic perspective, China would agree with "everything being asked" in the negotiations because it would lead to a domestic economic boom.
"They want to establish credibility on the trade in China and want to assure foreign investors that they can invest in China and be properly treated. If that happens, I see blue sky ahead for the Chinese economy," said Bullard. 19659004] "It is not just the United States that doubts Chinese credibility. Many global players around the world have found it a difficult place to do business. "
In an interview with Bloomberg TV earlier on Wednesday, Bullard said tariffs had to continue for" something like six months "with no view of a resolution aimed at weighing the Fed policy.
In their FCC remarks, He added that China that sells its large stock of US government bonds was not "as big of a threat as it is done", as it would be difficult to replace them with other assets.
Editing by Jacqueline Wong