Fed doves delight as Kaplan, Bullard laud policy patience

Bloomberg

Federal Reserve Bank of St. Louis President James Bullard and Dallas Fed chief Robert Kaplan applauded the central bank’s decision to take a pause on interest-rate increases in separate appearances and said patience was the right approach for the US economy.
“I think it set us up for a very good couple of years here,” Bullard said in a CNBC television interview. Bullard, a monetary policy voter in 2019, has been the most dovish Fed official over the past two years.
Kaplan, a fellow dove who votes on policy again next year, said he sees the pause lasting “certainly at least the first couple of quarters,” speaking with reporters following a speech in Austin, Texas.
Both officials said the Fed might just be taking a temporary breather. Slowing global growth, still-low inflation, and tighter financial conditions have spurred caution at the central bank.
“I think this concept of being on hold — I would like to think that we’re out of the business of penciling in further increases that have to be made,” Bullard said. “But obviously we will react to data as it comes in. So if the economy performs better than expected or worse than expected going forward, we’re willing to move in either direction.”
The Federal Open Market Committee this week held rates unchanged and dropped its guidance for more gradual rate hikes, replacing it with an explicit reference to being “patient.” Investors took that to mean no rate increase for several months, and interest-rate futures suggest they think a cut is roughly as likely as a hike.
“I was concerned coming out of the December meeting that maybe we weren’t in the right place — or we weren’t communicating the appropriate stance,” Kaplan said. “I think to our credit, we rectified that, to my satisfaction at least, and that’s the most important thing to me.”
Both officials spoke shortly after Labor Department data showed that US employers added 304,000 new jobs added in January, while average hourly earnings growth increased just 0.1 percent from the month before. Kaplan said he’s skeptical of the numbers, which may have been impacted by a spike in part-time workers thanks to the government shutdown. Bullard suggested the long-running relationship in which low unemployment spurs faster inflation has broken down. “The feedback from tight labor markets to inflation is extremely weak right now,” he said.