Last December, the Federal Reserve raised the federal funds rate for the fourth time in 2018 and according to St. Louis Fed President James Bullard, enough is enough.
In an interview with the Wall Street Journal, Bullard said the central bank is “bordering on going too far and possibly tipping the economy into recession.”
Bullard’s comments come as Fed Chair Jerome Powell is now preaching patience and adaptability regarding interest rate policy.
“As always, there is no preset path for policy,” Powell said. “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”
Powell’s latest comments come as U.S. equities finished their worst year in over a decade. The Dow fell 5.6 percent, while the S&P 500 lost 6.2 percent and the Nasdaq Composite fell 4 percent.
Bullard noted that the Fed is aware of the concerns regarding global economic growth, saying that the central bank is keen on “cross currents in the global economy and will be flexible and patient in implementing monetary policy.”
Bullard predicts 2019 will be a good year for the U.S. economy, and sees growth moderating to a level of 2.25 to 2.5 percent. Job growth surged to 312,000 during the month of December, handily beating economists’ expectations of 176,000 nonfarm payrolls added–a strong labor market that Bullard predicts will be paired with an unemployment rate remaining at its current level of 3.9.
Rate Cut Possible?
As for the possibility of a rate cut–not seen since the financial crisis in 2008 where rates were reduced to near zero–Bullard didn’t rule out the scenario.
“I wouldn’t rule that out depending on how the economy develops,” Mr. Bullard said. “If the economy slowed down more than we thought, or the inflation outlook deteriorated more than I’m suggesting here, there might be grounds for a little bit lower [federal-funds] rate in that scenario.”
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