Fed at ‘end of road’ on rate hikes, Bullard says

By Ann Saphir

(Reuters) – With U.S. growth likely to slow this year, the U.S. Federal Reserve has come to the “end of the road” on its current interest-rate hike cycle, St. Louis Federal Reserve Bank President James Bullard said on Thursday.

“I am concerned we are on the precipice of a policy mistake,” Bullard told reporters after an event in Little Rock, Ark. “We are good where we stand right now… What I don’t want to do is project that further increases are needed, that we are somehow short of our goal.”

Bullard is a voter on Fed policy this year, and his remarks suggest he may use that vote to cast a dissent should the Fed press forward with what in December policymakers projected would be two more rate hikes this year. Fed Chair Jerome Powell has faced no dissenting votes since he took over the gavel at the policysetting panel last February.

Under the Fed’s rules that limit votes by presidents of the Fed’s 12 regional banks, Bullard did not vote on rate setting in 2017 and 2018. But on Thursday he said would have supported the Fed’s rate hikes over most of that period because the economy grew faster than he and other policymakers had expected, pushing unemployment down more than anticipated.

That opened a window for the Fed to increase rates to more normal levels, he said.

But, he said, he argued against the December rate hike, the Fed’s fourth of the year and its ninth since it started its rate-hike cycle in December 2015, because inflation expectations had fallen.

Those expectations, he said Thursday, suggest the U.S. central bank’s policy stance “might be too hawkish.” He urged the Fed to heed that warning, and to be careful not to be so aggressive on policy that it inverts the yield curve.

The Fed needs to take signals from markets seriously, Bullard said, adding that “The market’s almost always right in that situation, and it’s the Fed that’s been wrong.”

Bullard also said he is concerned what has been a moderate slowdown in global growth could worsen.

While trade tensions between the U.S. and China and other trading partners may be inhibiting domestic business spending, the uncertainty and “angst” may be even more intense overseas, he said. That may be connected to the global growth slowdown, he said.

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