- Bullard says: Trade uncertainty likely to linger for years to come but does not see conditions warranting a 50 basis point cut all at once.
- DXY slightly higher although 10-year US yields lower.
St. Louis Federal Reserve President James Bullard has stated that the Federal Reserve has already adjusted for trade uncertainty.
Key Quotes:
- Trade uncertainty likely to linger for years to come.
- Fed can’t react to daily ‘give and take’ between major trading partners like us and China.
- Monetary policy ‘considerably’ looser today than as of late last year.
- Further rate action may be ‘desirable,’ but the economy still adjusting to Fed’s shift as of early this year from raising rates to lowering them.
- Risk that trade uncertainty may slow US economy more than expected.
- Doesn’t see a recession coming.
- Must find out right policy rate following normalization.
- Does not see conditions warranting a 50 basis point cut all at once.
FX market implications
This sounds like the door is left open for a September 25 basis point cut as another precautionary measure. Meanwhile, the spread between U.S. shorter- and longer-dated Treasury yields compressed more after Bullard cautioned about these protracted risks from trade for the Fed and the U.S. economy. The Dollar is, however, catching a bid here despite the 10-year yields falling to fresh lows for the sessions.
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