Bloomberg News/Landov
St. Louis Fed President James Bullard downplayed the recent inversion of the yield curve.
The slowdown seen in the most recent economic data is likely to be short-lived, and there is no need to talk about cutting interest rates, said St. Louis Fed President James Bullard on Thursday.
“We’ve had a spate of weaker data, but I still think it is probably mostly temporary,” Bullard told reporters after a speech at the University of Wisconsin-Madison.
“I think the notion of a rebound in the second quarter is a good forecast,” he added.
Bullard, who is not a voting member of the Fed’s interest-rate committee this year, said it was “premature” to contemplate rate cuts.
“I think you do want to watch the data closely,” he said.
Bullard, who has been a leader in the Fed’s move to a more dovish stance this year, said he is expecting a “relatively weak first quarter,” but said he wasn’t sure exactly how soft it would be.
See: It’s Jim Bullard’s world
The revision to fourth-quarter growth came in about as expected, he added.
See: U.S. economy grew at a slower 2.2% rate in the fourth quarter
“So the three-quarter trend is still around 2%, which is not too bad, and then I’d expect some strengthening in the second half of the year,” Bullard said.
A clear picture of the health of the economy in the second quarter won’t be available until July, he noted.
“That would be the next time you’d revisit” the stance of monetary policy, Bullard said.
Nervousness around the data, which has pushed down Treasury bond yields, is normal in a slowing economy, he said. Yields on the 10-year Treasury TMUBMUSD10Y, +0.06% are off 39 basis points since mid-January.
Investors now see more than a 30% chance of two rate cuts by early 2020, according to the CME Group’s FedWatch tool.
“It’s one thing to say the economy is slowing. It is another thing to say how fast,” he said.
Despite being one the first Fed officials to express concern with the flattening yield curve, Bullard said the recent inversion of some parts of the yield curve was not an important signal on its own.
“I think you would have to get a wider variety of spreads to be inverted — the two-year/10-year in particular, and it would have to stay inverted and be meaningfully inverted for awhile, a matter of months or even quarters, before you would say it that it was sending a negative signal that’s in the same sense that it did historically,” he said.
