Bullard Warns of a U.S. Recession If Fed Keeps Raising Rates

(Bloomberg) -- The president of the Federal Reserve Bank of St. Louis said he’s concerned that any more interest-rate increases could push the U.S. economy into a recession.

“We’ve got a good level of the policy rate today” and there’s no urgent need to go higher, James Bullard, a voting member this year on the Federal Open Market Committee, said in an interview with the Wall Street Journal published Wednesday.

Bullard Warns of a U.S. Recession If Fed Keeps Raising Rates

The Fed is “bordering on going too far and possibly tipping the economy into recession” if rates are lifted, he told the paper.

Bullard has been arguing, mostly unsuccessfully, for the Fed to hold off on rate increases because inflation isn’t posing a risk of accelerating much beyond officials’ 2 percent target. The Fed raised the benchmark short-term borrowing cost in December, the fourth hike of 2018 and the ninth since a tightening campaign began near the end of 2015.

In the interview with the newspaper, Bullard cautioned that financial markets are frowning on rate hikes and said officials should pay attention to those indicators. Bond yields are “signaling that there might be some recession risk ahead” if rates go higher, the paper quoted him as saying.

Open Door

Fed Chairman Jerome Powell last week opened the door to a pause in rate increases, pledging to be patient with any future rate hikes as officials take their cues from the economy’s performance.

“The committee is coming to my view on this, but we’ll have to see how things play out going forward,” Bullard said, according to the Journal. The Fed understands “cross currents in the global economy and will be flexible and patient in implementing monetary policy.”

The next meeting of the FOMC is scheduled for Jan. 29-30.

Bullard also said he wouldn’t rule out a rate cut if warranted, thought he isn’t expecting that to be necessary, according to the paper.

“If the economy slowed down more than we thought, or the inflation outlook deteriorated more than I’m suggesting here, there might be grounds for a little bit lower (federal funds) rate in that scenario,” Bullard said.

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