2018.05.2920:48:00UTC+00Fed’s Bullard Reiterates Call for Caution on Further Rate Hikes

The U.S. central bank will find it challenging to lift interest rates significantly beyond the parameters of its Japanese and European counterparts, which are still pursuing accommodative policy, according to St. Louis Fed President James Bullard.

The Fed official, who had priorly flagged the need for a caution in lifting rates, told the media on the sideline of an event in Tokyo that the U.S. central bank had sufficient tools and policy options to react if the U.S. economy slides into recession.

In a speech earlier on Tuesday, Bullard said that U.S. interest rates may have already reached the “neutral” level that neither stoked or weakened economic activity.

He said that it is difficult for U.S. rates to move beyond the present global rate situation and obviously both the Bank of Japan and the European Central Bank are continuing very accommodative policies.

Bullard said he did not want to prematurely judge the Fed's next meeting in June but he restated his view that the Fed does not need to increase interest rate further because the inflation outlook is too low.

During its May policy meeting, the Fed held interest rates steady in a target range of between 1.50 percent and 1.75 percent on May 2.

The U.S. central bank is projected to increase rates in June and continue a gradual series of increases until perhaps the middle of the year.

Bullard reiterated his views that inflation expectations continued to be a bit below the Fed's 2 percent inflation target, and that interest rates globally are being held down by longer-term economic and demographic trends.He said that delaying further rate increases would help enhance market-based measures of inflation expectations and make the Fed's commitment to reaching its inflation goal more believable.