Bullard Warns of a U.S. Recession If Fed Keeps Raising Rates
Bullard Warns of a U.S. Recession If Fed Keeps Raising Rates
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10 January, 2019, 03:10
The president of the Federal Reserve Bank of St. Louis said he's concerned that any more interest-rate increases could push the US economy into a recession.
"We've got a good level of the policy rate today" and there's no urgent need to go higher, James Bullard, a voting member this year on the Federal Open Market Committee, said in an interview with the Wall Street Journal published Wednesday.
But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes. A "few" Fed officials argued against hiking rates at the meeting, the account shows, although a rate hike was eventually approved unanimously.
After four rate hikes past year, the Fed would be "bordering on going too far and possibly tipping the economy into recession" if rates go higher, Bullard said, adding that he would be willing to cut interest rates if needed.
Investors were subsequently soothed by Powell's remarks on Friday that policy makers would be sensitive to the message that markets were sending about downside risks.
United States central bankers "can afford to be patient" before raising interest rates again, given low inflation and uncertainty about the outlook, according to the minutes of the Federal Reserve's December policy meeting.
Atlanta Fed President Raphael Bostic earlier told an audience in Chattanooga, Tennessee that a "patient approach" to policy was warranted.
The S&P 500 index of USA stocks has fallen 12 percent since a September peak.
Members generally agreed that despite some tightening financial conditions and a slight cool-down in global growth, overall growth would remain above trend and the labor market strong, anticipating "some further gradual increases in the target range".
He agreed with the prevailing view of the United States economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.
"Monetary policy was not on a preset course", it said.
Rosengren also said he believed the view of the US economy reflected in financial markets would ultimately prove overly pessimistic.
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