The Fed should slow its pace of policy normalization to adjust inflation expectations around 2% and reach its inflation target, Federal Reserve Bank of St. Louis President James Bullard said.
“Inflation expectations in the US remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target,” Bullard noted. “A reasonable policy going forward may be to temper the pace of normalization.” He also highlighted that raising rates aggressively would risk inverting the yield curve, an outcome that markets could interpret as signaling an brewing economic downturn.
Bullard said that keeping inflation expectations low could prevent the Fed reach its 2% target. The Fed policy rate is already near neutral, putting neither upward nor downward pressure on inflation, he added.
The comments of Federal Reserve Bank of St. Louis President come ahead of a possible rate increase at the Federal Open Market Committee’s next meeting.
The FOMC kept the target range for the federal funds rate at 1.5% to 1.75% at its May meeting. According to the regulator, the US inflation will approach the target level of 2% in the medium term.
