Federal Reserve Bank of St. Louis President James Bullard spoke Thursday in Little Rock about “Perspectives on 2019 Monetary Policy” as part of the Little Rock Regional Chamber’s “Power Up Little Rock” lecture series.
In a media session following his presentation at the Clinton Presidential Library, Bullard said, “We do have flexibility, now that we’re off zero, to move the policy rate either up or down in response to economic conditions. I think, for right now, the right place for the policy rate is probably where we are, and then we should react to incoming news on the economy.
“We should not be projecting that there are further rate increases to come. I don’t think that that’s realistic in this environment. And it sends a hawkish signal that, I think, is making markets think that inflation won’t hit the inflation target either in 2019 or beyond.”
In a news release about his talk, he explained that better-than-expected macroeconomic performances in 2017 and 2018 enabled U.S. monetary policy makers to normalize U.S. short-term interest rates by increasing them, though inflation remains subdued.
The Federal Open Market Committee, as of March 2017, expected stable and subdued economic growth in 2017, 2018 and this year. Instead, actual GDP growth was better, unemployment has been lower and actual inflation has been lower than projected, according to the release.
Also, in the release, Bullard said the FOMC should moderate its normalization campaign because of factors like low market-based inflation expectations and a threatening yield curve inversion.
He added that global growth was modestly slower than expected in 2018, and, though the International Monetary Fund hasn’t lowered its forecast for China, other data indicates that economy is slowing too.
“At this point, it’s hard to tell if [China’s economy is] going to accelerate, or if it’s going to turn around and not be a problem," Bullard said in the media session.
“We do have the example from 2016, where it looked like Chinese growth was going to be quite slow and that that might feed back to the global economy. That put the Fed on hold for an entire year, but, in the end, the Chinese economy grew at a fairly robust rate, actually, in 2016. So it did blow over in that instance and perhaps that’s what will happen here again.”
Bullard added that markets are concerned about China’s economy slowing and about 2019 heralding a more significant economic slowdown.