(Bloomberg) -- Jerome Powell just suffered his first dissent since becoming Federal Reserve chairman and the opposing vote was cast by reliable policy dove James Bullard.
The president of the St. Louis Fed bucked his colleagues, who voted on Wednesday to keep interest rates on hold in a 2.25% to 2.5% target range, by seeking a 25 basis point cut.
Bullard, 58, has been the most dovish participant on the Federal Open Market Committee in the last three years, based on his publicly stated outlook for monetary policy. That said, it was his first dissent since 2013 and first by any committee member since 2017. Powell became chair in February 2018.
The St. Louis Fed leader may well have reflected the view of some others on the committee, as eight of 17 participants projected lower rates by year’s end in their quarterly forecasts, popularly known as the dot plot.
“Powell suffered his first dissent and that is supportive of the tilt to an easing bias,’’ said John Herrmann, director of U.S. rate strategy at MUFG Securities Americas. “Bullard is the canary in the coal-mine. He highlighted concerns a bit earlier than other Fed officials. He is willing to stick his neck out and is symptomatic of where the committee is moving.’’
Bullard, a Minnesota native who’s been president of the St. Louis Fed since 2008, has argued since 2016 that persistently lower growth has moved interest rates into a new low-inflation regime where higher rates are not needed.
Powell , in a press conference following the decision, said he had no problems with dissents. Hearing differing views is a “very healthy” process and “I feel like you make better decisions when you hear a disparity of views.”
In a June 3 speech in Chicago, Bullard said inflation below the Fed’s 2% target and falling price expectations were a reason to cut rates. “A downward policy rate adjustment may be warranted soon,” to lift inflation up to the Fed’s 2% target.
His dovish stance has sometimes been echoed by Minneapolis Fed chief Neel Kashkari, who isn’t a voter this year. Both have suggested that the Fed has been too worried by very low unemployment, when there’s scant evidence that this will cause inflation to surge.
“Bullard’s view has been that if, despite a hot labor market, you are not seeing huge inflation then there’s a problem with assuming that relationship,’’ said David Wiczer, an economist at Stony Brook University in New York. Bullard looks beyond the Fed “‘orthodoxy you see often in the rest of the system,’’ he said.
The dot plot showed other policy makers were moving to Bullard’s view. The committee lowered its estimate of the long-term interest rate and cut its estimate of the long-term unemployment forecast.
To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alister Bull, Sarah McGregor
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