In TV Interviews, Two Fed Officials Split on Need for Rate Cuts

Two Fed officials offered contradictory views on the monetary-policy outlook in television interviews Friday.

St. Louis Fed leader James Bullard again expressed support for lowering short-term rates in a CNBC interview Friday, but he also said the U.S. central bank could reverse that course of action depending on how the economy performs. Cleveland Fed leader Loretta Mester said that if the economy continues on its current path she would be unlikely to support a rate cut.

Both officials were interviewed on the sidelines of the Kansas City Fed's annual Jackson Hole, Wyo., research conference, where Fed Chairman Jerome Powell is to make a highly anticipated speech later Friday.

The discordant rhetoric continues a theme: Three Fed officials were interviewed Thursday on television, with two opposing rate cuts and one signaling openness toward easier rate policy.

Mr. Bullard, a voting member of the rate-setting Federal Open Market Committee, has long favored easier policy. With risks to the outlook tied to weak global growth, and inflation too low, there is still a good case for the central bank to lower rates right now, he said.

"You'd like to take out more insurance against the downside risks, and I'd like to take out more insurance against the downside risk," Mr. Bullard said. The central banker didn't quantify when or by how much he would like to see the Fed lower rates, after it moved its short-term target rate range down by a quarter percentage point in July.

Ms. Mester, who isn't a voter, said she believed the July rate cut wasn't warranted based on how the U.S. economy has been performing. "At this point, if the economy continues where it is, I would probably say we should keep things where they are, but I am very attuned to the downside risks of this economy," the official said on CNBC.

But she also said she was "open-minded" and wanted to hear from her colleagues. "We are in a good spot, but we need to be very attuned to downside risks, and it could be we'll have to move policy at some point, " she said.

Financial markets broadly expect at least several more cuts from the Fed as the year progresses.

Mr. Bullard said the economy is doing generally pretty well even as inflation remains too low relative to the central bank's 2% target. The central banker also said that if the rate cuts prove unneeded, the central bank can reverse gears and boost rates again, explaining "you take out the insurance. If nothing happens, you take it back."

Write to Michael S. Derby at michael.derby@wsj.com

By Michael S. Derby

The Fed's second-in-command shrugged off heavy stock-market losses in a television interview Friday and affirmed his positive view on the economy, in comments that offered little guidance on what he would like to see with monetary policy over coming months.

"The economic outlook is favorable," Federal Reserve Vice Chairman Richard Clarida said on CNBC in an interview conducted on the sidelines of the Kansas City Fed's annual research conference in Jackson Hole, Wyo.

"The economy is in a good place, but there are some significant risks" tied mostly to slowing overseas growth, Mr. Clarida said.

When it comes to the future of monetary policy, Mr. Clarida said "we take our policy decisions one meeting at a time, but as we've indicated, we'll do what we need to to put in place the appropriate policies, and we will act as appropriate to keep the economy in a good place."

The official spoke in the wake of a speech earlier in the day by Fed Chairman Jerome Powell, which kept the door open to rate cuts without offering firm guidance about the central bank's monetary-policy plans.

Financial markets widely expect to see the Fed's quarter-percentage-point rate cut from July to be followed with further action. Markets and economists see the move toward lower borrowing costs as offering insurance against a weaker global economy and trade uncertainty, at a time when inflation is also weak.

Friday was also a volatile day on the trade and political front. China announced a new round of tariffs on U.S. goods, while President Trump again attacked the Fed for not explicitly pursuing an aggressively easier policy. He even called Mr. Powell an "enemy" of the United States.

Financial markets were hard-hit, with big stock losses and further declines in bond yields. But Mr. Clarida signaled he was looking through that for now.

"I'm not dismissing the decline in the Dow obviously, but we are looking at the longer run trends in the economy and the financial markets," Mr. Clarida said. "Markets go up and down so we try to filter through the day to day," he said, adding "obviously the global outlook has worsened since our July meeting."

The central banker said Mr. Trump's attacks weren't affecting the Fed's ability to do its job. He said recession risks haven't become more elevated. The official added the so-called flattening on the bond-market yield curve likely reflects foreign developments and that it may not be a particularly negative signal for the U.S. outlook.

Mr. Clarida's appearance on CNBC Friday followed that of two of his colleagues, also on the network.

St. Louis Fed leader James Bullard again expressed support for lowering short-term rates, but he also said the U.S. central bank could reverse that course of action depending on how the economy performs. Cleveland Fed leader Loretta Mester said that if the economy continues on its current path she would be unlikely to support a rate cut.

Both officials were interviewed on the sidelines of the Kansas City Fed's annual Jackson Hole, Wyo., research conference, where Fed Chairman Jerome Powell is to make a highly anticipated speech later Friday.

The discordant rhetoric continues a theme: Three Fed officials were interviewed Thursday on television, with two opposing rate cuts and one signaling openness toward easier rate policy.

Mr. Bullard, a voting member of the rate-setting Federal Open Market Committee, has long favored easier policy. With risks to the outlook tied to weak global growth, and inflation too low, there is still a good case for the central bank to lower rates right now, he said.

"You'd like to take out more insurance against the downside risks, and I'd like to take out more insurance against the downside risk," Mr. Bullard said. The central banker didn't quantify when or by how much he would like to see the Fed lower rates.

Ms. Mester, who isn't a voter, said she believed the July rate cut wasn't warranted based on how the U.S. economy has been performing. "At this point, if the economy continues where it is, I would probably say we should keep things where they are, but I am very attuned to the downside risks of this economy," the official said on CNBC.

But she also said she was "open-minded" and wanted to hear from her colleagues. "We are in a good spot, but we need to be very attuned to downside risks, and it could be we'll have to move policy at some point, " she said.

Financial markets broadly expect at least several more cuts from the Fed as the year progresses.

Mr. Bullard said the economy is doing generally pretty well even as inflation remains too low relative to the central bank's 2% target. The central banker also said that if the rate cuts prove unneeded, the central bank can reverse gears and boost rates again, explaining "you take out the insurance. If nothing happens, you take it back."

Write to Michael S. Derby at michael.derby@wsj.com


  (END) Dow Jones Newswires
  08-23-19 0947ET
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