With growth, inflation and interest rates low, accommodative monetary policy remains appropriate, Federal Reserve Bank of St. Louis President James Bullard said Thursday.

“The most likely outcome over the forecast horizon is that the regime persists and, hence, the current level of the policy rate remains appropriate,” Bullard said in a speech in London, according to text released by the Fed. “Many future developments could impact this policy path, but the Fed does not need to act pre-emptively with respect to any of them.”

Federal Reserve Bank of St. Louis President James Bullard.
Federal Reserve Bank of St. Louis President James Bullard. Bloomberg News

Although the first quarter GDP growth estimate was raised to 1.4%, and second quarter estimates are higher, it won’t be enough to push the U.S. beyond 2% real growth. “The 2% growth regime appears to remain intact,” Bullard noted.

Inflation has failed to meet the Fed’s 2% target since 2012, he said, and “Recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target.”

And, despite fed rate increases, “The financial market reaction has been reflected in a lower U.S. 10-year Treasury yield, lower market-based U.S. inflation expectations and an implied policy rate path closer to the St. Louis Fed path for 2017 and 2018 of 113 basis points,” Bullard said.

Although the unemployment rate dropped to 4.3% in May, Bullard said thus doesn’t signal an impending jump in inflation. “Even if the U.S. unemployment rate declines substantially further, current estimates suggest the effects on U.S. inflation are likely to be small.”

Germany, the U.K., Japan, as well as other nations, also have low rates of unemployment and low inflation, he noted.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.