St. Louis Fed President James Bullard says he hasn’t “lost confidence yet” in the prospects for the U.S. economy, adding that he expects “better news” in the data through the second quarter of this year. Bullard also said he is “very wary” as he watches portions of the yield curve invert.
“Still steady as she goes,” Bullard said in an exclusive interview with Yahoo Finance.
Bullard said a “spate” of bad news in January and February weighed on the Fed in the first quarter. In addition to a disappointing February jobs report, early-year declines in retail sales numbers and slower-than-expected manufacturing readings led the Federal Open Market Committee to signal no rate hikes for 2019 in its March meeting.
Fed Chair Jerome Powell cited geopolitical concerns abroad and “muted” inflationary pressures in the decision to pause on rates, which are currently in a target range of 2.25% to 2.5%.
Bullard said the China trade deal still presents the threat of a “major impact” on the global economy, adding that relatively low commodity prices have caused “struggle” in the agricultural sector. He said soybeans have been particularly impacted by the trade spat.
Still, Bullard said the U.S. economy is in “great shape,” saying that he’s seen some of the negative data readings ease as of late.
Don’t invert the yield curve
On the inverting yield curve, Bullard says the market is saying it does not anticipate as much growth or inflation in the future as the Fed might see. He said the economy is in a “gray area” where the Fed needs to be careful.
“I’m being very wary in this situation that we, the Fed in particular, does not knowingly invert the yield curve or push it toward further toward inversion than we already have.”
Looking back on the December rate hike, Bullard reiterated that he wanted the Fed to hold off on a 25-basis point hike. Bullard said that the “dovish rate hike” may have confused markets by raising rates, signaling a lower outlook for 2019, but still leaving open the possibility for more rate hikes in the future.
“It didn’t come off very well,” Bullard said.
Bullard said he is encouraged by the Fed’s current policy of a “flat rate outlook.”
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.