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Fed's Bullard : After Three Rate Cuts, It's Now Time for Fed to Hold Steady -- Update

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11/14/2019 | 03:57pm EST

By Michael S. Derby

Federal Reserve Bank of St. Louis President James Bullard said he doesn't see any need to lower interest rates beyond the three cuts the U.S. central bank has made this year.

"Now it makes sense to wait and see how the economy responds during the fourth quarter here and into 2020" before contemplating further action, Mr. Bullard told reporters after a speech in Louisville, Ky., on Thursday.

Mr. Bullard said that even if new economic data is unexpectedly weak, it shouldn't change that view over the near term. "Even if you've got...some data that surprised in this environment, you might make the argument that we've been pre-emptive already," he said.

"The rate cuts that we've had in the last three meetings are providing insurance against more substantial slowdown in the U.S. economy," Mr. Bullard said. "Once we get on the other side of this process, then we can think about whether we want to...possibly take back those insurance cuts, as we did in the 1990s," he added.

In Mr. Bullard's prepared remarks, he said the U.S. economy was getting stimulus from central-bank policy beyond what three interest-rate cuts would normally produce.

"U.S. monetary policy is considerably more accommodative today than it was as of late last year," Mr. Bullard said. The Fed "has taken actions that have changed the outlook for shorter-term U.S. interest rates considerably over the last 12 months, ultimately providing more accommodation to the economy," he said.

Mr. Bullard, a voting member of the rate-setting Federal Open Market Committee, has been a strong advocate of lowering rates this year, even dissenting at one meeting in favor of a bigger rate cut than his colleagues favored.

The Fed has lowered rates three times in 2019. The overnight interest-rate target range now stands between 1.50% and 1.75%. Most Fed officials have said they are on board with holding steady on rates for now.

Mr. Bullard said the Fed's move away from predicting rate increases in future years has also helped shift financial conditions to a more stimulative profile. The shift in monetary policy's support of the economy "has been much larger than the three latest rate reductions alone would suggest because the expectation as of late last year was that the FOMC would actually raise rates further in 2019," he said.

The Fed lowered rates and shifted its outlook as trade uncertainty and slowing global growth weighed on the outlook of an otherwise healthy economy. Mr. Bullard noted that when it comes to trade and broader economic uncertainty "the economy faces downside risk that may cause the slowdown to be sharper than expected."

"I think of trade regime uncertainty as simply being high in the current environment," Mr. Bullard said, adding "I do not expect this uncertainty to dissipate in the quarters and years ahead."

Still, the shift in Fed policy "in the face of trade policy uncertainty may help facilitate somewhat faster growth in 2020 than what might otherwise occur" and help lift low inflation back to the Fed's 2% target, he said.

Write to Michael S. Derby at michael.derby@wsj.com

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