Bankers told of robust growth

Fed’s Bullard: ’17 beat forecast

The U.S. economy is doing very well three months into 2018, James Bullard, president of the Federal Reserve Bank of St. Louis, told Arkansas bankers Wednesday.

That is in addition to a strong 2017 in several international economies, including a significant surprise in global gross domestic product growth, Bullard said.

Bullard spoke at the annual convention of the Arkansas Bankers Association.

The U.S. economy grew by 2.6 percent last year, beating International Monetary Fund expectations by 0.4 percentage point. China reported that its economy rose 6.8 percent, up 0.6 percentage point above projections.

The European economy improved 2.7 percent, up 1.2 percentage points over forecasts. The Japanese economy increased 2.1 percent, 1.5 percentage points above projections. And the United Kingdom was up 1.4 percent, beating expectations by 0.3 percentage point.

The healthy worldwide economy was the reason for most of the growth in the U.S. stock markets last year,

Bullard said.

“That has tapered off in the first [three months] of 2018,” Bullard said. “That is partly because first-quarter growth is a little bit less certain.”

Other factors contributing to There remains the possibility this year for an inverted yield curve on debt, Bullard said.

An inverted yield curve happens when the return on short-term debt exceeds the return on longer-term debt.

And an inverted yield curve has been a reliable indicator of impending economic slumps. The spread between threemonth Treasury bills and 10-year bills has inverted before each of the past seven recessions, according to Bloomberg data.

Bullard, who said he is concerned about the potential for a yield curve inversion, said the spread between 10-year and one-year Treasury yields has shrunk since 2014.

“It is possible we could get a yield curve inversion later this year or in 2019,” Bullard said, if the Fed continues to raise its policy rate and “the 10-year doesn’t move out of its trading range.”

Bullard said he’s opposed to the Fed making decisions that could cause an inversion.

“If the market [causes] the yield curve inversion, that’s not my fault,” Bullard said. “But the Fed, I think, should not be pressing so hard that we go all the way to invert the yield curve. That’s why I want to get the debate going on this.”

Phil Baldwin, chief executive officer of Citizens Bank in Batesville, asked Bullard the effect that trade tariffs would have on China’s economy.

“First of all, how much time do you have?” Bullard asked. “If it was steel and aluminum, which were the original announcements, with a bunch of exceptions, that would not have very much impact at the [macroeconomic] level. It would have an impact on those industries. Now, more recently, we’re talking about more generalized tariffs between the U.S. and China. I think that is a more significant development. The president has a lot of conviction on this issue and is determined to get better trade deals for the U.S.”

President Donald Trump is willing to press much harder than we’re accustomed to on trade issues, Bullard said.

“I think there is a growing consensus across the political aisle [and globally] that China has not been a fair player after we allowed them to come into the [World Trade Organization] in 2001,” Bullard said.

There was an implicit promise that China would play by the rules and not have a lot of nontariff barriers to trade in China, Bullard said.

“And that they would transition to democracy in China,” Bullard said. “They’re obviously not transitioning toward democracy at all, as far as I can tell.”