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Bullard not ruling out more rate cuts but assessing effects of Fed 'sea change'

More rate cuts from the Federal Reserve may be necessary at some point, but the Fed should step back and evaluate how its shift in policy this year affects the economy, St. Louis Fed President James Bullard said Aug. 6.

Bullard, one of the Fed's more dovish members, said he continues to see downside risks to the U.S. economy, along with muted inflation pressures. But he said Fed officials have already undergone a "sea change" in their monetary policy stance from last year, when most Federal Open Market Committee members were projecting rate increases in 2019.

Instead of following through on tighter policy, the Fed kept its benchmark rate unchanged this year until the central bank cut rates by 25 basis points at its July 31 meeting.

That dovish shift means the Fed's policy stance is quite a bit "more accommodative" than it was earlier, and officials should wait to see how the lagged effects of those combined moves will ripple through the economy, Bullard said.

"It's not clear that you want to pile on, necessarily, at this juncture," he said. "You want to see how those previous moves are affecting the economy, but I wouldn't rule out more changes yet."

The next FOMC meeting will take place Sept. 17 and 18, and Bullard, who is a committee voter this year, said he would evaluate incoming data as he decides what type of action he would favor.

Bullard spoke during a turbulent week for stock markets, which were rocked by Aug. 5 reports that China was retaliating against President Donald Trump's latest planned tariffs by letting the yuan weaken past the 7-per-dollar threshold for the first time in 11 years.

The S&P 500 Index has recovered some of its losses Aug. 6, rising 1.07% to 2,875.28 as of 3:12 p.m. ET.

Bullard said the recent news is an example of how uncertainty over trade policy will continue "as far as the eye can see," noting that other countries beyond the U.S. and China are also rethinking their stances on trade. But Bullard argued that Fed officials should not overreact to each tit-for-tat action, saying such threats are just the "nature of the trade war."

"In my mind, anyway, we've already adjusted for the fact that ... trade regime uncertainty is going to be high," he said. "We've put in a more accommodative policy. Now it's time to see if we bought enough insurance against the possible negative effects."

Having the Fed respond to each new salvo in the trade war would make monetary policy unstable and likely lead to further volatility, he added.

"That seems like a losing proposition to me," Bullard told reporters after the event. "Monetary policy has to be more stable than that."