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Fed's Bullard: Hold Off on Further Rate Hikes Until Inflation Rises

25 June 2017

US government bonds remained stuck in a holding pattern Friday, with yields slipping slightly on a daily and weekly basis as investors awaited more data to either confirm or challenge their lowered inflation expectations.

Federal Reserve officials on Friday argued both sides of the debate over how the USA central bank should react to a recent downturn in inflation, highlighting a discussion that could determine how many more times its raises interest rates this year and next. The Fed has fallen short of its 2 percent inflation target for several years.

Speaking in Nashville earlier, St Louis Fed chief James Bullard said the absence of inflation pressures gives the central bank scope for patience.

"I don't think there is an immediate need to do something, I don't think we are behind the curve, but I do think this gradual reduction of accommodation. makes sense to me", said Cleveland Fed President Loretta Mester.

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Mr. Kaplan told reporters this week in San Francisco he would like to see more evidence that weak inflation has passed before raising short-term interest rates again. "It's important not to overreact to a few readings and data on inflation can be noisy", she said June 14.

New York Fed President William Dudley, who is also vice-chairman of the FOMC and has a permanent policy vote, has also lined up with Ms Yellen, saying on June 19 that a tightening labour market will drive inflation back to 2 per cent.

Growth also remains stuck at 2 percent, and it remains unlikely that the economic proposals of the Trump administration will raise that anytime soon, said Bullard.

He has argued that the Fed should not raise rates any more until it is clear the economy has shifted to a higher growth, higher inflation "regime". Yields on the 10-year Treasury note have sunk to their lowest levels of the year in recent days, a sign that investors don't see a pickup in prices and economic activity in the near term.

Fed's Bullard: Hold Off on Further Rate Hikes Until Inflation Rises