Fed's Bullard says time for Fed to pause on interest-rate hikes

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Even though a low unemployment rate of 4.3 percent would, in theory, lead to higher inflation and provide a reason for raising rates now, Bullard said there is little evidence that is going to happen anytime soon.

The dollar dipped to a four-day low against a basket of major currencies on Friday, as traders looked to U.S. inflation data due next week to provide more clues on the Federal Reserve's policy outlook.

Yet, the current Fed tightening cycle is only motivated by the labour market's strength out of all macroeconomic fundamentals, with United States unemployment at its multi-year low of 4.3 percent. Their decline has been kept in check, at the same time, by key Fed officials insisting inflation is still on track to reach their 2% target.

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It is a "distinct possibility" that process could kick off at the Fed's September meeting, Bullard said.

"Many future developments could impact this policy path, but the Fed does not need to pre-empt any of them", Bullard said during his presentation at the Illinois Bankers Association conference in Nashville.

Federal Reserve officials on Friday argued both sides of the debate over how the United States 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. Additionally, they said that this presumes that the Fed can't force the issue much further past making up for the negative term premium. But the policy statement flagged concern over a recent fall in the Fed's preferred measure of inflation to 1.5 percent, and Fed officials since then have appeared split between those anxious the trend may persist and those who feel the Fed needs to tighten still-loose monetary policy as a precaution. This move is seen as very hard given USA airlines current position that their Persian Gulf rivals have unfair advantages due to large government subsidies. "The short answer is no, based on current estimates of the relationship between unemployment and inflation", Bullard said.