Monetary policy is near appropriate levels, Federal Reserve Bank of St. Louis President James Bullard repeated Monday.

“The current level of the policy rate is likely to remain appropriate over the near term,” he said at a speech in Nashville, according to text released by the Fed.

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

Real GDP growth has been slow, near 2%, inflation has surprised to the downside in recent months, and low unemployment will not translate into meaningfully higher inflation, Bullard said. “The current level of the policy rate is appropriate given current macroeconomic data.”

“Second-quarter real GDP growth showed some improvement from the first quarter, but not enough to move the U.S. economy away from a regime characterized by 2% trend growth,” according to Bullard. Real GDP grew at an annual rate of 1.9% in the first half of 2017. “The 2% growth regime appears to remain intact,” he said.

Bullard pointed out inflation has been below the FOMC’s 2% target since 2012. “Recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target.”

Does the low unemployment rate foreshadow a substantial rise in inflation? “The short answer is no, based on current estimates of the relationship between unemployment and inflation,” Bullard said. “Even if the U.S. unemployment rate declines substantially further, the effects on U.S. inflation are likely to be small.”

He noted financial stability is not a stated Federal Open Market Committee goal. “Financial stability is sometimes considered as an additional goal, but can be more directly addressed through regulatory policy. This remains a hot topic,” Bullard said.

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