By Tom Fairless and Todd Buell
FRANKFURT--Federal Reserve Bank of St. Louis President James Bullard said on Friday he is leaning toward supporting a rate increase at the U.S. Federal Reserve's December policy meeting.
"Markets are currently [pricing in a] high probability of a December move, I'm leaning toward supporting that," Mr. Bullard said at a banking conference here. "The question now is about 2017."
Investors expect the Fed to increase interest rates next month for the first time in a year. They have begun pricing in a faster pace of rate increases since President-Elect Donald Trump pledged during campaigning for the Nov. 8 election to boost spending on infrastructure and cut taxes, which could stimulate the economy.
Mr. Bullard stressed that a 25-basis point rate increase, which financial markets expect policy makers to deliver, effectively amounts to no change from the central bank.
"It is better to see the Fed as approximately on hold, with just very small moves upward," he told reporters.
"One change a year, with the [Fed's] balance sheet still big, is really not much of a change in U.S. monetary policy," he said.
Asked about the impact of the U.S. elections, Mr. Bullard said the new Republican-controlled administration would likely adopt tax and fiscal measures that could spur the U.S. economy by 2018 or 2019.
The rise in government bond yields and inflation expectations since Mr. Trump's victory is a "positive sign," he said, pushing government bond yields to about the level they were when the Fed hiked rates a year ago.
"So far so good, if we've raised inflation expectations back to more natural levels," he said.
The Fed is likely to prove resistant to any political changes instituted by the new administration, he added, highlighting the central bank's large staff and institutional memory.
Foreign investors have been given plenty of time to prepare for higher U.S. interest rates, Mr. Bullard added.
Still, the Fed official said U.S. policy rates probably wouldn't need to rise a large amount given slow economic growth and sluggish productivity gains.
"We've been saying the policy rate probably doesn't need to change too much" to suit the current economic environment, he said. He added that he doesn't see a bubble in the U.S. economy of the same magnitude as those of the late 1990s and mid 2000s.
Write to Tom Fairless at firstname.lastname@example.org and Todd Buell at email@example.com
(END) Dow Jones Newswires
November 18, 2016 08:57 ET (13:57 GMT)
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