Economists have been surprised by the positive performance of the country's economy for the past two years, James Bullard, president of the Federal Reserve Bank of St. Louis, told members of the Little Rock Regional Chamber of Commerce on Thursday.
The Federal Open Market Committee should heed important signals, such as expectations of low inflation and the threat of an inverted yield curve, "to keep the U.S. expansion on track for the next several years," said Bullard, speaking at the Clinton Presidential Center.
"The FOMC has already been sufficiently preemptive over the last two years to contain [the risk of rising inflation]," Bullard said.
The committee raised interest rates three times in 2017 and four times in 2018. He argued against raising rates at the December meeting of the Federal Reserve, Bullard said.
"And even with the hike, I argued against the language we put in the statement," Bullard said. "I thought we could have tempered that language better."
An inverted yield curve occurs when short-term debt pays a higher interest rate than long-term debt does.
"A significant and sustained inversion of the Treasury yield curve would be a bearish signal for the U.S. economy," Bullard said.
Every U.S. recession since World War II has come after a yield curve inversion, Bullard said.
Michael Pakko, chief economist at the Arkansas Economic Development Institute at the University of Arkansas at Little Rock, said he wasn't surprised by Bullard's comments.
"He laid out a pretty consistent case for perhaps slowing the pace of [raising interest rates] for 2019," Pakko said. "I think that mirrors some of the remarks I've heard from [Federal Reserve Chairman Jerome Powell]."
In remarks Thursday before the Economic Club of Washington, D.C., Powell reiterated that the Fed plans to evaluate the health of the economy before moving ahead with any new interest-rate increases.
Powell said that 2018 was "a very good year for the economy," and that the Fed saw signs of continued momentum in the latest economic data. Financial markets, on the other hand, have shown signs of anxiety about the economic outlook, particularly the slowing pace of international growth.
"We have the ability to be patient and watch patiently and carefully as we watch the economy evolve," Powell said.
Inflation has been subdued despite the positive surprise of the country's strong economy, Bullard said.
In March 2017, the median projection by the committee was for stable and subdued economic growth in 2017, 2018 and 2019.
"Actual real [gross domestic product] growth has been stronger than expected, actual unemployment has trended lower than expected and actual inflation has been somewhat lower than expected," Bullard said.
Because the economy performed better than expected in 2017 and 2018, many anticipated higher inflation. But actual inflation readings have remained under control, Bullard said.
Bullard pointed out that the committee missed its personal consumption expenditures inflation target every year since 2012.
The financial markets believe the committee will again miss its personal consumption expenditures inflation target for the next five years, Bullard said.
"This is a market signal that the current stance of monetary policy may be too hawkish," Bullard said.
Information for this article was contributed by Binyamin Appelbaum of The New York Times.
Business on 01/11/2019
Print Headline: Fed exec: 2-year economy surprising