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Fed's Bullard, Kashkari Favor Holding Interest Rates Steady

Two regional Federal Reserve leaders said on Thursday they saw no reason to change short-term rates any time soon.

In a speech in Madison, Wis., Federal Reserve Bank of St. Louis President James Bullard said, “The current baseline economic outlook for 2020 suggests a reasonable chance that the soft landing will be achieved” after the central bank lowered interest rates three times in 2019 to cushion the economy against a possible downturn. He told reporters after his speech “we should wait and see what the effects are” before tweaking monetary policy again.

Speaking on Fox Business Network, Federal Bank of Minneapolis President Neel Kashkari also said he sees no reason to alter the current course of monetary policy. He told the network he’d hold steady “for the foreseeable future, the next six months, next year, but it will depend.” He added he would be in the camp of favoring “more accommodation” if “inflation continues to weaken or inflation expectations continue to slide.”

The two officials have long been the central bank’s most robust supporters of keeping rates low. While both have acknowledged strength in labor markets, they have argued that rock-bottom jobless numbers need not call for higher short-term rates as long as inflation pressures are negligible.

Mr. Bullard held a vote on the rate-setting Federal Open Market Committee last year and was an early advocate for what became three rate cuts over the later part of the year, ultimately leaving the central bank’s target rate at a range between 1.50% and 1.75%. Mr. Bullard won’t vote this year due to the rotation of regional Fed leaders, but Mr. Kashkari will.

The Minneapolis Fed leader said in the interview that “now that we’re in a pause mode, I think we’re in a much better position. And if the labor market continues to draw people back in, wages continue to rise, eventually that should bleed through to help and get inflation back to our 2% target.”

Mr. Bullard was upbeat in his remarks in Madison. He said trade uncertainty, while elevated, has abated somewhat. He added that while Middle East tensions have risen and could push up oil prices, the U.S. will be more resilient in the face of any possible energy shock. Mr. Bullard noted the U.S. is more energy efficient and produces more of its own energy now, which protects it somewhat from higher oil prices.

Mr. Bullard also said, “U.S. monetary policy is considerably more accommodative today than it was as of late 2018.” What’s more, those rate cuts have had an outsize impact because financial conditions have eased by more than would be indicated by the central bank’s rate cuts last year, which totaled three-quarters of a percentage point, he said.

The Federal Open Market Committee’s “adjustment toward lower rates in 2019 may help facilitate somewhat faster growth in 2020 than what might have otherwise occurred,” Mr. Bullard said. The rate cuts can be seen as “insurance against the possibility that nonmonetary factors could have larger-than-expected negative effects on growth.”

The two regional Fed officials spoke after an appearance earlier in the day be the Fed’s second-in-command, Vice Chairman Richard Clarida. He said “monetary policy is in a good place and should continue to support sustained growth, a strong labor market and inflation running close” to the Fed’s 2% target, in an appearance before the Council on Foreign Relations in New York.

Write to Michael S. Derby at

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