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Going further at this point, he said, risks nipping off business
investment that might follow the recent corporate tax cut, upset
healthy conditions in the labor market, and leave inflation
expectations short of the central bank's goal.
There are "reasons for caution in raising the policy rate
further given current macroeconomic conditions," Bullard said in
remarks to the Springfield Area Chamber of Commerce in
Springfield, Mo.
Bullard has made a series of arguments in recent years for
halting further rate increases until it is clear that inflation,
growth and market interest rates have shifted to a higher, more
dynamic "regime."
His colleagues have proceeded to gradually raise rates
nonetheless, and currently expect to do so two more times this
year. Many economists and analysts argue they will likely add an
additional quarter-point increase this year as the impact of
burgeoning federal deficits and a recent tax cut are felt in an
economy with low unemployment and inflation edging up towards
the Fed's two percent target.
Bullard, who is not a voting member of the Fed's policy
committee this year, said he felt they may be moving too fast.
While inflation now appears close to 2 percent, Bullard said his
estimate of market-based inflation expectations show that
investors "believe there is currently little inflationary
pressure in the U.S."
Leaving rates steady, he said, would "re-center inflation
expectations at the target."
He laid out a similar case for giving businesses more time to
invest, and for extending what he sees as a healthy balance in
job markets where building wage pressures offer companies a
choice between paying more to workers or investing more capital
to raise productivity.
"This is an equilibrium process, not an inflationary one,"
Bullard said, and "it is not necessary to disrupt" it with
higher interest rates.
He also flagged an evolving debate at the Fed about how much
further rates can rise before they are neutral and no longer
"accommodative." That is a sensitive line the central bank may
be hesitant to cross, but to Bullard it has already arrived.
The Fed's current policy rate of between 1.5 and 1.75 percent is
already "pressing against" estimates of the neutral rate, he
said, another argument against going further.
(Editing by Chizu Nomiyama)
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