Bullard estimates that the Fed will soon have to cut interest rates because of trade wars and low inflation

Reuters

A senior Federal Reserve official said on Monday that the central bank may have to cut interest rates soon because of low inflation and the threat posed to its economy by President Donald's fierce trade struggles. Trump with China and other countries.

James Bullard, President of the Saint Louis Fed, said that resolving trade disputes would probably be more difficult than previously thought, a move that could dampen business investment and increase pressure on an economy. growth has already slowed since last year.

The Fed "should face an economy that is expected to grow more slowly, with the risk that the slowdown will be stronger than expected due to the continuing uncertainty of the global trade regime," Bullard said in a speech in Chicago .

A set of recent reports point to a slowdown in the economy, including the latest snapshot of manufacturing conditions in the United States. The American stock market

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has also suffered in recent weeks, after the rise of trade tensions.

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Last month, Trump asked the Fed to cut rates to help the United States in its trade dispute with China. Bullard did not mention the president and warned that the Fed could not react to weekly exchanges in trade negotiations.

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In addition to trade disputes, Bullard said the arguments for a rate cut were also reinforced by continued low inflation, below the Fed's target of 2%. He asserted that a recent reversal of the Treasury yield curve suggests that the current level of interest rates is "excessively high."

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Bullard is a voting member of the Fed's interest rate setting board this year. He has often pleaded for the cost of borrowing to remain low, saying the Fed may be hurting the economy by being too aggressive.

The bank's benchmark interest rate, known as the federal funds, was last raised in December and ranges from 2.25% to 2.50%.

Even that is too high, Bullard said.

"Financial markets seem to expect less growth and less inflation in the future than [Fed] This means that the rate setting may be too restrictive for the current environment, "he said.

The president of the St. Louis Fed said that one or more rate cuts could help stabilize the economy and ensure the expansion of current economic expansion, ten years old .

He recounted that the Fed had reversed its trend in the mid-1990s, lowering rates after a series of hikes when it seemed that the expansion was about to run out of steam. Instead, the economy has developed for another five years.

"The economy did not go into recession but experienced an economic boom in the second half of the 1990s," Bullard said. "This example shows that the normalization of key rates can be achieved without compromising the prospects of a period of prolonged growth."