In Switch, Bullard Warns Against Rate Hikes, Suggesting Fed’s Direction

One of the U.S. Federal Reserve’s most prominent advocates of higher interest rates on Wednesday declared it “unwise” to move any further in light of weak inflation and global volatility, suggesting the Fed is stepping further away from plans to continue to hike rates.

St. Louis Fed President James Bullard argued steadily last year for the U.S. central bank to tighten policy and sounded alarms over the risk that continued low rates would create dangerous asset bubbles.

But on Wednesday he said the steady drop in U.S. inflation expectations is now his chief worry and said he will not be comfortable with further hikes until the trend reverses. His change of emphasis puts him more in line with dovish Fed members like board member Lael Brainard, who voiced similar inflation concerns over the past year, and may indicate an extended pause in the Fed’s tightening cycle.

Bullard is a voting member of the Fed’s rate-setting committee this year.

His comments echo the fears raised by Fed officials at their last policy meeting, in January. According to minutes of that session, released on Wednesday, policymakers discussed whether a more volatile global environment would throw their outlook for rates off track.

Reuters

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.