The U.S. Federal Reserve should be cautious as it continues hiking its benchmark interest rate, St. Louis Fed President James Bullard said May 29.
Bullard, speaking at an event in Tokyo, reiterated his view that the Fed's actions have already put the federal funds rate roughly around a "neutral" policy stance, following years of stimulative monetary policy. That suggests "it may not be necessary" for the Fed to opt for additional tightening, he said, according to a news release.
The Federal Open Market Committee raised the rate in March and is expected to do so three or four times in total this year. Bullard is not a voter this year on the FOMC.
He continued to warn that the Fed's tightening plan could bring about a yield curve inversion in the coming months or in 2019. An inversion in the yield curve has historically pointed to an upcoming recession, he said.
"In my view, it is unnecessary for the FOMC to be so aggressive as to invert the yield curve," he said.
Plus, he said, holding off on further rate increases could help raise market-based inflation expectations and "re-center" expectations on the Fed's 2% target. Markets are signaling they do not think inflation will rise substantially and "don't believe the Fed will quite hit its inflation target, even over the next five years," he said.
Bullard also told reporters at the event that the Fed could face complications if it takes its benchmark rate to levels significantly above the European and Japanese central banks, which have been more reluctant to raise rates, according to Reuters. Bullard said doing so could throw off the "global equilibrium of rates" and lead to other developments, such as changes in exchange rates, Reuters reported.
