Fed Does Not, Need Not Raise Interest Rates Anytime Soon

The Federal Reserve can leave interest rates where they are for now because inflation is not likely to rise much even if the US job market continues to improve, St. Louis Fed President James Bullard said Monday.

“The current level of the policy rate is likely to remain appropriate over the near term,” Mr. Bullard said in slides prepared ahead of a speech to the America’s Cotton Marketing Cooperatives 2017 Conference in Nashville, Tennessee.

The PCE (personal consumption expenditures) price index excluding food and energy, which is the Fed’s preferred gauge of inflation, has been running at 1.5% and has trended away from the central bank’s 2% target in recent months.

Mr. Bullard said that measure of inflation is forecast to rise only to 1.8% even if the US unemployment rate falls to 3% from the current 4.3%. With so little upward pressure on inflation, the Fed does not need to raise rates to slow growth, he said.

Mr. Bullard’s comments are in line with those he has been making for over a year, arguing that the Fed does not need to raise rates until the US economy breaks out of its pattern of about 2% annual growth.

That’s unlikely to happen near term, Mr. Bullard said Monday. The economy grew just 1.9% on an annualized rate in 1-H of this year despite a rebound in Q-2 after a anemic Q-1.

“The 2% growth regime appears to remain intact,” Mr. Bullard said.

Mr. Bullard does not vote on monetary policy this year at the Fed, though he participates in the central bank’s regular policy discussions in Washington.

Stay tuned…

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