FOMC Rate Cut Should Have Been Larger

ST. LOUIS–One member of the Federal Open Markets Committee says he believes the Fed erred last week and should have cut rates further.

James Bullard, president of the Federal Reserve Bank of St. Louis, said deeper rate cuts are necessary to head off growing economic risks. At its most recent meeting the FOMC cut rates by 25 basis points.

“Lowering the target range for the federal funds rate by 50 basis points at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks,” Bullard told the Wall Street Journal. “It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize.”

Bullard was among three members of the FOMC who voted against the 25-basis point reduction, but he cast his vote for a different reason, as the other two FOMC members dissented because they didn’t believe any rate cut was necessary. The three dissenting votes were the first to be cast since an FOMC meeting in September of 2016.

Growing Risks

Bullard told the Journal the risks of an economic slowdown are growing, and noted the Fed’s target-rate range, which now stands at between 1.75% and 2%, is higher than other major nations. Bullard also said a bigger rate cut now would help speed a return to 2% inflation.

Bullard further told the Journal that while his vote went against the consensus, he remains confident that his colleagues “will continue to monitor economic developments and respond accordingly as economic circumstances dictate.”



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