24/7 Wall St.

The Federal Reserve does not usually have the chairman and regional Fed presidents make comments around each market sell-off, but Federal Reserve Bank of St. Louis President James Bullard presented his speech called “Remarks on the 2018 U.S. Macroeconomic Outlook” on Tuesday at the Annual Economic Outlook Conference at the University of Kentucky.

Bullard was not targeting the stock market in his speech, but there may be some words that can act as a calming agent. While Bullard said that real gross domestic product growth surprised to the upside in 2017, he noted the natural prediction from here as a case in which growth will slow toward trend during 2018 and 2019. His warning against that is that the possibility of a tax-driven investment boom leans against this type of forecast.

One helpful force on Tuesday was that Bullard specifically pointed out that inflation remains low while there is good growth and relatively good labor market performance. He even addressed wage inflation by watering down some of those fears:

Continued strong labor market performance is unlikely to translate into meaningfully higher inflation because Phillips curve effects are weak. However, inflation expectations have moved more in line with the 2 percent inflation target of the Federal Open Market Committee.

Bullard also cautioned against tying last Friday’s strong jobs numbers to being inflationary as a whole:

I caution against interpreting good news from labor markets as translating directly into higher inflation. The empirical relationship between these variables has broken down in recent years and may be close to zero. … The measures today are closer to being in line with the FOMC’s 2 percent inflation target, but remain a bit low.

And as far as monetary policy as a whole, Bullard believes we are now closer to a neutral stance rather than the overly accommodative policies of 2010 through 2016. He pointed out that the Federal Open Market Committee has begun to gradually reduce the size of its balance sheet and that the fed funds rate has increased gradually to the current 1.25% to 1.50% range. He also noted that current estimates of the neutral real rate are near zero, and that core personal consumption expenditures inflation is roughly 1.5%. Blending those two indicators led Bullard to suggest “the current policy setting is closer to neutral than in previous years.”

While many Fed watchers only assign high weighting to the Federal Reserve chair, and perhaps the Federal Reserve Bank of New York, the St. Louis Fed runs the Federal Reserve Economic Data, or FRED, that is used by so many economists and market watchers for actual economic report tracking through time and for historical perspectives.