The U.S. Federal Reserve will have difficulty raising interest rates significantly beyond the settings of its Japanese and European counterparts, which are still pursuing accommodative policy, St. Louis Fed President James Bullard said on Tuesday.
Bullard, who has previously flagged the need for a caution in raising rates, told reporters on the sidelines of a seminar in Tokyo on Tuesday the Fed had enough tools and policy options to respond if the U.S. economy falls into a recession.
He said in a speech earlier in the day that U.S. interest rates may have already hit the “neutral” level that neither encourages nor discourages economic activity.
“It is hard for U.S. rates to get too far out of line with the global rate situation, and obviously both the (Bank of Japan) and the (European Central Bank) are continuing very accommodative policies,” Bullard told reporters.
“Is it constraining? It is in the sense that there is a global equilibrium of rates and if you get too far out of line things have to happen, exchange rates have to move, and other things have to happen.”
Bullard said he did not want to prejudge the Fed’s next meeting in June, but he reiterated his view that the Fed does not need to raise interest rates further because inflation expectations are low.
The Fed held interest rates steady in a target range of between 1.50 percent and 1.75 percent on May 2.