Central Banks

Tuesday, February 11, 2020 - 15:46

MNI POLICY: Fed's Bullard: 'Steady As She Goes' For Rates


By Jean Yung

WASHINGTON (MNI) - With the U.S. economy in a "good position" and fears of coronavirus gutting global growth yet to materialize, Federal Reserve Bank of St. Louis President Jim Bullard told reporters Tuesday that U.S. interest rates are "steady as she goes."

Futures markets are rightly pricing in "some tail risk" from the Chinese outbreak but the epidemic will likely subside within one to two months as in past episodes, he said.

"Markets have what's called a peso problem, where they have to decide about the low probability of a high impact event, so I think that's skewing the forecast a little bit toward Fed easing," he said. "What will happen is when the virus comes under control, which is my base case, then that will come out of the market, probably."

On rates, "I can say steady as she goes right now. We can take the data as it comes in," he said.

Bullard also repeated his call for the FOMC to create a standing repo facility to facilitate control of benchmark short-term rates. The facility, which would exchange cash for Treasuries or other acceptable collateral, would meet an international standard on market operations and avoid stigma associated with borrowing through the discount window.

"The reality of trying to destigmatize the discount window would be very difficult," he said. "My preferred route is to start a new facility."

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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