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Fed’s Bullard says cutting benchmark rate “may be warranted soon”

Says global trade disputes may be difficult to resolve

Federal Reserve Bank of St. Louis President James Bullard said Monday that a lowering of the central bank’s short-term target rate “may be warranted soon.”

The Fed “faces an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty,” Bullard said in a speech to the Union League Club of Chicago. “Global trade disputes may be more protracted and more difficult to resolve than previously envisioned.”

Bullard is currently a voting member of the rate-setting Federal Open Market Committee. The FOMC consists of eight permanent members, including the Fed’s Board of Governors and the president of the Federal Reserve Bank of New York, as well as four of the remaining 11 Federal Reserve bank presidents who serve one-year terms on a rotating basis.

His remarks are the first time a Fed official has publicly suggested the need for a rate cut since the central bank put rates on hold in January. Bullard is known as one of the most dovish members of the Fed, meaning he tends to favor low rates to stimulate economic growth.

Bullard “has long been a skeptic of the Fed’s currently on-hold effort to lift short term rates, arguing that low inflation rates and changes in the job market argued against the need to make short-term borrowing costs more expensive,” The Wall Street Journal wrote in a story on his speech.

“In his Chicago presentation, Mr. Bullard said growing trade disputes between the U.S. and other nations are boosting risks to growth in a year where economic activity was already expected to slow from last year’s torrid pace,” the WSJ said in its story.

Bullard said monetary policy in the 1990s is a "useful analogy for today," according to his prepared remarks:

"The policy rate was increased 300 basis points between early 1994 and early 1995, similar to the 225 basis point normalization that ended in December 2018. The FOMC subsequently lowered rates somewhat. The economy did not enter a recession but instead boomed during the second half of the 1990s. This example shows that policy rate normalization can be accomplished without damaging the prospects for an extended period of growth."

The next FOMC meeting is set for June 18-19 in Washington, D.C.

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