US interest rates should be left on hold, says top Fed official
Federal Reserve Bank of St Louis President James Bullard said interest-rate policy should be left on hold after "unexpectedly low" price data suggested that inflation may not be on track to rise to the US central bank's 2pc target.
"Recent inflation data have surprised to the downside and call into question the idea that US inflation is reliably returning toward target," Mr Bullard said yesterday in Nashville, Tennessee, according to the text of his prepared remarks.
"The current level of the policy rate is likely to remain appropriate over the near term.''
Policy makers left rates unchanged last month while saying they would begin running off their $4.5trn balance sheet "relatively soon", in a signal that the central bank could announce the timing of the reduction program in September. The Fed bought trillions of dollars of securities to lower long-term borrowing costs after its policy rate was cut to zero in December 2008.
The Fed's preferred gauge of price pressures rose 1.4pc in the 12 months through June and has been under its 2pc target for most of the last five years.
Weak global commodity prices have probably contributed to unexpectedly low inflation, Mr Bullard said at the America's Cotton Marketing Cooperatives conference. At the same time, Mr Bullard said he disagreed with the orthodox policy view that low unemployment contributes to higher inflation, saying there was little relationship.
"Even if the US unemployment rate declines substantially further, the effects on US inflation are likely to be small," he said. The US economy added 209,000 jobs in July and the unemployment rate fell to 4.3pc, a US Labour Department report showed.