EFFINGHAM, Ill (Reuters) – The Federal Reserve’s policy shift since last year has made monetary policy “considerably more accommodative” than a year ago, but world markets are likely expecting more to come, St. Louis Federal Reserve bank president James Bullard said on Monday.
Bullard, who has focused on the fact that some short-term Treasury debt yields have risen above long-term bond yields in what is sometimes seen as a sign of coming recession, noted that for now the bond “yield curve” look more normal.
But that is “likely because markets are anticipating future policy moves” by the Fed, Bullard said.
The Fed has cut rates twice this year, lowering its target rate to a range of between 1.75% and 2.00% at its last meeting. Top officials say they will now make decisions on a “meeting by meeting” basis, with no clear commitment to further reductions.
Investments in contracts tied to the Fed’s target policy rate show investors expect one to two more quarter point reductions by the end of the year.
Bullard dissented at last week’s meeting, arguing for a deeper half point cut on the grounds that the Fed needed to do more to guard against trade risks and a steeper U.S. slowdown given signs the manufacturing sector may already be contracting.
The central bank has already done a lot, Bullard acknowledged in remarks to the Effingham County Chamber of Commerce.
While the Fed has cut short-term interest rates a half a percentage point since July, its overall shift in tone and the removal of previously expected rate hikes have caused longer-term bond rates to fall by more than twice that amount, Bullard said.
Still, he said, the Fed “may choose to provide additional accommodation going forward” as global trade and other risks threaten to cause the United States to slow more than expected this year, and undercut the Fed’s ability to achieve its 2% inflation target.”Recent developments in global trade negotiations suggest that it will be difficult to reach a stable global trade regime” anytime soon, Bullard said. “This is likely chilling global investment and feeding into slower global growth.”
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