St. Louis Fed President James Bullard told CNBC on Wednesday that he thinks the central bank should continue cutting interest rates, with his preference one more quarter-point move lower by the end of the year
“We’ve made a big move,” he said during an interview on “Closing Bell.” “I think we probably have a little bit more to go here.”
Bullard was one of three voting members on the Federal Open Market Committee to dissent from last week’s decision to cut overnight lending rates by 25 basis points. The others, Esther George of Kansas City and Eric Rosengren of Boston, voted no because they felt the Fed should have held the line. Bullard wanted a 50 basis point cut.
That was the second time this year that the committee approved a rate cut, and Bullard thinks one more would be appropriate.
“I think it would have been better to go a little further at this last meeting than the majority of the committee wanted to go,” he added.
While he conceded that the economy has bounced back after an earlier recession scare, he added that the Fed’s policy pivot earlier this year played a key role. The central bank went into 2019 indicating two more rate increases were likely after four hikes in 2018, but quickly changed amid a global economic slowdown, an intensifying tariff exchange between the U.S. and China and low inflation.
Of all those issues, Bullard said he sees trade as the most serious threat as it is “chilling global investment.”
He recommended continuing to provide insurance against a downturn is the prudent thing to do for now.
“This is all about risk management,” Bullard said. “If the economy powers through here as it did in the late ’90s, then we can raise the policy rate back up.”
The Fed’s goal he said, should be “to keep the expansion going, the labor market performing well and keep the consumer on track.”
That would not include the rates that have spread through Europe and Japan, pulling about $16 trillion worth of sovereign debt into negative yields.
“One of the biggest risks we face is falling into the kind of negative rate trap that you see in Europe today or in Japan today,” Bullard said. “If you get to that point it’s kind of too late. It’s very difficult to maneuver at that point, as Europe is finding out.”