WASHINGTON (Reuters) - The U.S. Federal Reserve does not need to raise its benchmark interest rate much further given how close it is to the neutral rate, St. Louis Fed President James Bullard said on Wednesday.
“Current policy setting is closer to neutral than in previous years,” Bullard said in prepared remarks before a bankers association in Little Rock, Arkansas.
“It is not necessary...to raise the policy rate further in order to put downward pressure on inflation, since inflation is already below target,” he added.
Bullard, who does not have a vote on the Fed’s interest rate policy this year, has become critical of the central bank’s plans to continue to raise rates as it seeks to normalize short-term borrowing costs amid a strong economy.
He has repeatedly argued that the Fed risks making monetary policy too tight if it raises rates much further due to a lower long-run neutral rate than in the past.
The so-called neutral rate is the level of interest rates that is neither expansionary nor contractionary for the economy.
Fed officials raised interest rates at their latest policy meeting two weeks ago to a target range of between 1.50 and 1.75 percent.
The Fed has now raised rates six times since it began a tightening cycle in late 2015, with the pace of hikes having quickened to three rate rises last year.
The median forecast remains for another two rate hikes this year, but a growing number of policymakers foresee three being required to prevent the economy from overheating.
In his speech, Bullard also said U.S. economic growth for the first quarter looked uncertain and pointed to possible speed bumps such as financial markets trying to parse U.S. trade policy and possible tech sector regulation.
U.S. stocks have been volatile in recent days as a trade spat between Washington and Beijing ratchets up while Facebook has come under increasing pressure from lawmakers about data privacy.
Bullard noted that market-based measures of inflation compensation have recently increased and that price pressures overall are expected to rise.
He also appeared slightly less concerned than previously on the possibility that a key recession indicator in the past, the inversion of the nominal yield curve - the spread between 2- and 10-year notes - could soon occur.
“It is possible that the nominal yield curve will invert sometime in the next year, but recently the 10-year yield has increased enough to keep pace with the FOMC’s rate increases,” he said.
Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama