A cut in the interest rate in the US may be carried out soon with the increasing risk to the growth of economy by the rising trade tensions and weak inflation in the US, said James Bullard, the president of St. Louis Federal Reserve. He is the first official of Fed to say that the recent events would require a response of central bank.
Bullard said that although the Fed can’t respond to all the changes happening in the trade war between the top nations and the US, the recent events such as unexpected new tariffs on imports of Mexico have created the environment of increased uncertainty which can get affect the macroeconomic performance of the US as the economy slows down.
He added that Fed is facing an economy which is likely to grow at a slow pace with a risk that the slowdown might be sharper as compared to its expectations because of the uncertainty of the ongoing trade regime globally. In addition to it, both inflation expectations and inflation is bowl target and the yield curve of treasury suggests that the current rate of policy is high inappropriately. The warning signals from bond market in the US and weak inflation warrants a downward rate adjustment of policy soon for boosting the expectations of inflation and helping ease the fears seen in the bond prices of a sharper US slowdown as compared to the expectations.
Earlier rounds of trade actions by the US against many countries and China left the Fed unmoved and they said that there wasn’t any need for reacting unless trade tensions continued or started changing the outlook of US growth. Bullard, who has been the Central Bank’s voting member of the committee of rate setting this year, is more concerned regarding the rates on bonds of 10 years that have dropped below the yields of 3 months and the rates of federal funds itself. He feels that the yield curve’s inversion would bolster the rate cut case.