FED’S BULLARD SAYS TAX OVERHAUL MAY LIGHT FIRE UNDER INVESTMENT

Federal Reserve Bank of St. Louis President James Bullard said President Donald Trump’s $1.5 trillion tax overhaul may spur investment and U.S. economic growth, though policy makers can “wait and see” if that warrants higher interest rates because inflation is low.

“There is some possibility this could light a fire under investment and really drive growth higher,” Bullard, a policy dove who has argued against raising rates, said in a Bloomberg TV interview with Michael McKee. “If that happens I would certainly take note of that and adjust policy appropriately.”

Bullard, attending the American Economic Association annual meeting in Philadelphia, said the U.S. economy expanded by around 2.5 percent or slightly higher last year.

Trump last month signed into law the most extensive rewrite of the U.S. tax code in 30 years, lowering taxes for corporations and most individuals.

“I have some sympathy for this idea you would get this investment boom coming out of this tax policy,” Bullard said. He noted that many companies are sitting on piles of cash, so could presumably have already stepped up investment if they had a desire to do so.

“As a monetary policy maker, with inflation pretty low, I can afford to wait and see if that really happens or not,” he said.

Bullard has opposed additional interest rate hikes and been the most dovish official on the Federal Open Market Committee, arguing that a low-growth economy with little inflation doesn’t require preemptive policy tightening.

While most of the FOMC predict a tightening labor market will raise wages and inflation, Bullard pointed out unemployment, already at a 16-year low, hasn’t shown any significant link to prices in recent years, and inflation remains below the Fed’s 2 percent target.

“We’ve really made no progress in the last two years toward our inflation target,” he said.

Source: Bloomberg

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