Bullard Wants “Insurance” Cut to Fight Low Inflation

While the focus was on Powell on Wednesday, St. Louis Federal Reserve Bank President James Bullard highlighted the importance of higher inflation. Bullard repeated his call for an interest rate cut, saying the Fed needs to nudge inflation expectations higher.
James Hyerczyk

After Fed Chair Powell’s first day of testimony before the House Financial Services Committee ended on Wednesday, there was no room for a letup ahead of Thursday’s session with the House Banking Committee, with the central bank releasing the minutes from its June meeting at 18:00 GMT.

In summary, the minutes revealed that Federal Reserve officials at the June 18-19 meeting saw the case for easier monetary policy gaining momentum.

Here are some of the highlights.

Members See Need for Cushion

“Several participants noted that a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy.”

Heightened Concerns Over Inflation

“Some participants also noted that the continued shortfall in inflation risked a softening of inflation expectations that could slow the sustained return of inflation to the Committee’s 2% objective.”

More Data Needed

Policymakers kept their benchmark interest rate unchanged in June with one member voting for a 25-basis point rate cut. However, “some” felt the need for more data before moving ahead with a rate cut.

“There was not yet a strong case for a rate cut from current levels,” according to the meeting’s summary.

Downside Risks Acknowledged

“Participants generally agreed that downside risks to the outlook for economic activity had risen materially since their May meeting, particularly those associated with ongoing trade negotiations and slowing economic growth abroad,” according to the minutes.

Moving on to U.S. Inflation Data

A key measure of U.S. inflation, the core consumer price index will be released on Thursday. It is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.

While the focus was on Powell on Wednesday, St. Louis Federal Reserve Bank President James Bullard highlighted the importance of higher inflation. Bullard repeated his call for an interest rate cut, saying the Fed needs to nudge inflation expectations higher.

In a speech at an OMFIF Foundation meeting at Washington University, Bullard said the Fed should be concerned that inflation remains stubbornly below its 2 percent target.

Bullard also pushed for the Fed to take “insurance” against an economic shortfall. “I think trade uncertainty is going to slow down global growth and that will feed back into the U.S. economy. What we’d like to do is take out some insurance against the possibility of a sharper-than-expected slowdown.”

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