The Fed: Fed’s Bullard argues against December interest-rate hike

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Senior economics reporter

The Federal Reserve should consider pausing at its December meeting to give itself more time to understand why financial markets have become so volatile, St. Louis Fed President James Bullard said Friday.

The fact that every meeting next year is “live,” because Fed Chairman Jerome Powell will hold a news conference at all meetings, opens up “new channels” for the central bank, Bullard told reporters after a speech in Carmel, Ind.

Former Fed Chairman Alan Greenspan would sometimes hold off on an interest-rate hike at a particular meeting with a pledge to move at the next meeting in six weeks if economic conditions cooperated, Bullard said.

“The committee could contemplate using that tool if they so desired starting with the December meeting,” he said.

With a pause “you’d get a lot more information about what’s troubling the financial market,” Bullard said. In addition, officials would get a “better read” on the holiday season and fourth-quarter gross domestic product.

Another alternative would be for the Fed to go ahead with a December rate hike and send signals it was not planning to move as aggressively as expected in the future.

The St. Louis Fed president will be a voting member of the Fed’s interest-rate committee next year. He called himself the most dovish of the 17 senior Fed policy makers.

The Wall Street Journal reported Thursday that Fed officials wanted to hike in December and then take a wait-and-see attitude next year.

Earlier Friday, Fed Gov. Lael Brainard said gradual rate increases “remains appropriate in the near term” but sounded more dovish about future moves.

See: Fed’s Brainard ever so slightly takes on more dovish tone

For his part, Bullard said he thought interest rates were already “a little bit above neutral” and therefore are restricting growth.

That is the signal the market is sending with the flattening yield curve, he said.

If the Fed hiked rates at the meeting on Dec. 19, there was a risk the yield curve could invert this year.

Bullard said the Fed tightening has entered a new chapter. Over the past two years, the Fed steadily hiked rates but economic growth continued to surprise to the upside.

But in 2019, almost all forecasters expect a slowdown. That makes it tougher to tighten monetary policy, he said.

That’s part of the story in the global market selloff in the past few days, he said.

The economy surprised to the upside in 2018 and now corporate CEOs that he has talked with are “pretty much to the person” worried about the future.

There are concerns about how much the economy will slow and how violent it will be,” he said.

Stocks tumbled again Friday, with the Dow Jones Industrial Average DJIA, -2.31%   down more than 500 points. This followed a decline of 878 points over the past two trading days.

Financial markets are pricing in one interest-rate hike in December and just one more in 2019. Yields on government debt TMUBMUSD02Y, -1.63%   have dropped dramatically this week.

Economists think the November jobs report was strong enough for the Fed to raise rates this month but would slow the pace of hikes in 2019 to two moves from the likely four moves this year.

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