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St. Louis Fed's Bullard says expected rate hikes "aggressive"

Reuters  |  ST. LOUIS 

ST. LOUIS (Reuters) - The Fed's expected plans for rate increases may be too fast for an economy that has shown recent signs of weakness, St. Louis Federal Reserve President James said on Friday, making the case for a continued go-slow approach as progress stalls.

A recent dip in and expectations means the may not make as much progress as expected towards its target, and at a time when risks are increasing that political gridlock in Washington will continue.

Expectations that tax, regulatory and other changes may boost growth have buoyed business confidence and markets since the start of the year, but are looking less likely as the Trump administration faces continued controversy.

said that recent events in Washington, on their own, have not changed his expectations for an economy anticipated to slog along at a 2 percent annual growth rate. But they have coincided with weaker inflation, and a dip in long-term bond yields that seem counter to the Fed's faith it should continue to raise interest rates, said.

readings "are weak, they've come down and they are too low for the to reach its target," said in comments at the Association for Corporate Growth. "They've gone in the wrong direction and a little bit too sharply for comfort."

The is expected to raise interest rates at its June meeting. Bullard, who currently does not have a vote on the central bank's rate setting committee, said he would not object to that move. However, he feels his colleagues risk being "overly aggressive" if they move rates any higher until it is clear that will rebound.

Since the raised rates in March, data has dipped and so have long-term bond yields, the opposite of what would happen if investors and the public felt the economy was going to continue on a strong enough course to justify further rate increases. In their most recent set of projections central bank officials said they foresaw raising rates two more times over the course of this year.

The political climate in Washington has also deteriorated, likely reducing the chance that major tax or other changes will be approved quickly with the Trump administration now facing a ramped-up investigation over allegations about its campaign's ties to Russia.

said he did not think events in Washington have yet had an appreciable impact on the economy, but markets should prepare for continued political volatility.

Gridlock on major policy issues has become the norm, said, so if that continues it will not change the outlook.

"The Trump campaign was unusual, unconventional ... and you expected an unconventional president. You have more volatility than you are used to in the policy sphere," said "At least for 2017 I don't see this as having particular implications that I can draw at this point."

(Reporting by Howard Schneider; Editing by Chizu Nomiyama)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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