St. Louis Fed chief says more rate cuts may be desirable as Trump's trade war escalates
WASHINGTON - As the U.S.-China trade war heightens, President Donald Trump and Wall Street are calling on the Federal Reserve to cut interest rates further to help boost the economy. A key Federal Reserve leader suggested that as a possibility, but not a guarantee.
"While additional policy action may be desirable, the long and variable lags in the effects of monetary policy suggest that the effects of previous actions are only now beginning to impact macroeconomic outcomes," said James Bullard, president of the St. Louis Fed, at a speech to the National Economists Club in Washington.
Bullard's remarks are closely watched because he was the most vocal advocate of an interest-rate cut in the summer.
He was the only voting member of the Fed's rate setting committee to vote in favor of a cut in June.
The Fed ultimately cut interest rates in July.
"You are not in recession mode here," he said, stressing that the Fed has already made a "sea change" in policy in the past year that is helping aid the economy.
Wall Street is pricing interest rate cuts in September, December and January. Trump has urged the Fed to cut right now to counter China's currency devaluation this week.
Bullard dismissed that call, saying the Fed cannot save the economy from the daily gyrations and uncertainty from the trade war.
"U. S. monetary policy cannot reasonably react to the day-to-day give-and-take of trade negotiations," he said.
He said the trade war has already had a "chilling" effect on business investment and predicted that the trade war will continue for potentially years to come.
"You've opened Pandora's box," said Bullard. "I do not expect this uncertainty to dissipate in the quarters and years ahead."
The White House approached Bullard about being Trump's nominee to become a Fed governor in Washington, but Bullard declined, saying he prefers to remain in St. Louis.
He has since indicated that he would be willing to serve as Fed chair.