The Federal Reserve's most recent interest rate increase put monetary policy about where it should be, with no further hikes required in an economy where inflation remains weak, St. Louis Fed President James Bullard said on Thursday, pressing an argument he has made over the past two years. There was some worry when rates were at record lows that the Fed couldn't lower them any more to try to stimulate the economy. Unfortunately, the rates can't stay too low for a long time as the inflation might get out of hand. The rate helps determine what consumers pay on their mortgages, credit cards and other borrowing. If and when that happens, my sense is that the president will be thankful for the Fed.
Still, he added, "I also think that we should pay attention to other indicators of tightness and overheating in addition to inflation". "We just may not agree on how to get there". That's especially true in the USA where "the macro-prudential regulatory arsenal is pretty non-existent". "The sense of the meeting was more hawkish than investors might have thought".
Bullard also feels the Fed should not "pencil in" rate increases far into the future because of the uncertainty around forecasts, and the confusion that can cause among investors and households.
But some Fed members warned that instability in emerging economies - many of which are heavily indebted and vulnerable when USA rates rise - could "spread more broadly through the global economy and financial markets".
The more the so-called long-term growth potential of the economy increases, "the more gradual we can be in our removal of monetary policy accommodation", he said in the speech. Shanghai's benchmark index closed at a near four-year low and China's premier warned of risks to the economy.
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The Fed has raised interest rates six times during the Trump administration, three of those times under current Fed chief Jerome Powell, who was nominated by Trump. But the courts ruled in a case decades ago involving the Federal Trade Commission that this language has to involve more than a policy disagreement between the president and the Fed.
As opposed to a mild brake on the economy, Bullard argued that rates that high "would be moving quite a ways into restrictive territory". It is largely expected to hike once more before the year end.
"It has a long history of Fed governors ignoring what a president says, and I think this is likely to be the case here", said Kroszner, now an economics professor at the University of Chicago Booth School of Business at an worldwide banking conference in Bali last week.
The US economy has been growing more quickly this year than many economists believe is possible without generating higher inflation, with the jobless rate at its lowest level in decades.