St. Louis Federal Reserve Bank president James Bullard said global trade and other risks remain high for a U.S. economy that may slow more sharply than expected.
As a result, the Fed “may choose to provide additional accommodation going forward, but decisions will be made on a meeting-by-meeting basis,” he said in remarks to a conference in London on Tuesday.
Mr. Bullard did not specifically discuss the preliminary trade deal reached between the United States and China last week, instead stressing that the uncertainty around global trade was likely to last, potentially for years.
Daily threats and counterthreats in the trade war, or announcements or rejections of tentative deals, “are just the manifestations of ongoing negotiations and manifestations of the trade regime uncertainty,” Mr. Bullard said.
“I’m not expecting any of this to go away in the years ahead,” he added, later telling reporters that the U.S.-China row had opened a “Pandora’s box” on a potential reversal of global trade openness.
Mr. Bullard also outlined the Fed’s playbook for dealing with a potential “ordinary recession.” He said the options to slash borrowing rates to zero, restart assets purchases and provide supportive policy promises, were still “state of the art.”
But negative interest rates, adopted in large parts of Europe and Japan since the global financial crisis, were not on the list.
“I’m not a fan of this policy. Negative interest rates have had mixed results where they’ve been tried,” Mr. Bullard told reporters, adding that it was not clear either how multi-trillion dollar U.S. money markets would adapt to such a policy.
Mr. Bullard is generally seen as one of the more dovish Fed policy-makers. When the central bank reduced interest rates by a quarter of a percentage point in September, he argued for a deeper half-point cut.
However, in his speech on Tuesday, he did flag that if the risks now facing the world’s largest economy turn out to have been overstated, the Fed may actually start raising rates again next year.
“We are lowering the policy rate today, we are taking on board downside risk, but we can take back that insurance in 2020 or 2021 if it turns out we were overly worried about the downside risks,” Mr. Bullard said.