Federal Reserve

St Louis Fed Pres James Bullard says June rate hike not set in stone, but labor data favorable

James Bullard: Fed will remain data-dependent
James Bullard: Fed will remain data-dependent

A U.S. Federal Reserve rate hike in June or July wasn't set in stone, but labor data suggested it was time to pull the trigger, St. Louis Fed President James Bullard told CNBC.

"There's no reason to prejudge June," Bullard said, adding that the Federal Open Markets Committee would look at the data and decide then.

Muddying the waters on the timing of the move, Bullard noted that there was no reason the Fed must hold a press conference in conjunction with a rate hike. A press conference is scheduled to follow the June 14-15 meeting, but one is not scheduled after the July 26-27 meeting.

"We can wait until we get to the meeting, see what the latest data says, and try to make a good decision there. I think on the issue of press conferences, we have made many moves over the years without press conferences," he said.

"So I think you can make a move without press conferences in this circumstance. I think for that first move, you know the one we did in December, there you probably wanted to have a press conference around that because that was our first move. Whether you have to do that for every single move, I think it is questionable."

For Bullard, labor data was sending a clear signal.

"If you just took your signal from [labor market data], we'd definitely move," he said, noting labor was "at or beyond" full employment, with the number of unemployed persons per job opening lower than during the previous expansion.

"I think we are at or beyond full employment in the U.S., so in the labour market side, that's probably the strongest argument for going ahead and making a move," Bullard said.

But he added that other data were not as strong, with tracking estimates for gross domestic product (GDP) growth this quarter at around 1.6 percent, below the 2 percent trend growth expected.

The Fed kept its target overnight interest rate in a range of 0.25 percent to 0.50 percent at its April meeting, but the meeting's minutes specifically mentioned June as a time when it could hike rates. The Fed hiked rates in December for the first time in nearly a decade.

One thing that, unexpectedly, may not factor in to the Fed's decision-making: The U.S. presidential election.

"The Fed has moved during political cycles in the past," Bullard said, noting that the central bank started a tightening cycle during the 2004 presidential election year.

"Monetary policy is largely independent of the political process. And one of the things I think is you can't win an election by talking about whether the Fed should move right or move left," he said.

'Fed will still have to wait for Brexit'
'Fed will still have to wait for Brexit'

Additionally, markets may be fixated on whether the U.K. would vote to leave the European Union (EU), an event dubbed the "Brexit," and if that would throw a speed bump onto the Fed's hiking path, but Bullard said he did not consider it "quite the global financial market event that some are saying," although he noted his view could be "an outlier."

"This is an important strategic decision for the U.K. It's also important for the continent. But the truth is, this is a trade agreement, this is a negotiated situation," he said.

"Even if they decide to get out of the EU, nothing will change on the next day. They will go for two more years. They would open up negotiations. Negotiations would probably drag on even longer than that. So this would be a slow kind of change over many years if they decided to leave."

When it comes to speculation that U.S. monetary policy may follow other major global central banks down the path of negative interest rates, Bullard said he did not consider it likely and was somewhat critical of the concept.

"Negative rates are a tax on the institutions that face short-term interest rates," he said. "When there's a tax, somebody has to pay the tax. So either corporate profits have to fall or they have to raise rates on borrowers or they have to cut rates for depositors.

The Federal Reserve building
Expect Fed to hike in September: Expert

"But somebody has to pay, one way or another, to pay the tax and none of those things sound very expansionary. I think maybe there are some conceptual problems with negative rates."

Other Fed officials also have prepped markets for a likely interest rate increase sooner rather than later.

New York Fed President William Dudley said last week that the Fed could hike in June or July, and some market commentators have now gravitated to July as the more likely of the two. Market expectations for a June hike jumped on May 18 after the Fed's April minutes were release and have stayed above 30 percent since then, according to CME's FedWatch tool.

Expectations for a July hike rose from 38 percent on May 18 to more than 60 percent Monday.

Speaking on Monday, Philadelphia Fed President Patrick Harker said the central bank should hike interest rates at a mid-June policy meeting unless data before then showed the U.S. economy was falling off its positive track.

"If the data comes in and it's not consistent with my view of the strength in the economy, then I would pause. But otherwise I think a June rate increase is appropriate," Harker told reporters.

"But again, it does depend on what that data looks like," he said, citing employment and inflation reports that are expected before the June policy meeting.

Evelyn Cheng and Patti Domm contributed to this report

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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1