James Bullard said he remains confident the Fed can get inflation back under control without creating a recession.
Photo: Luke MacGregor/Bloomberg News
Federal Reserve Bank of St. Louis President
said Friday that unexpectedly high inflation calls for a more aggressive path of short-term interest rate rises this year.
Inflation “has come in broader and hotter than previously had been expected,” Mr. Bullard said in a virtual appearance before the European Economics & Financial Centre. The Fed “has to react and the way we can react is charting out a course that’s somewhat more aggressive over the second half of this year,” he said.
Because of this, Mr. Bullard said that instead of his prior forecast of getting the federal funds target rate to 3.5% by year-end, he now believes the Federal Reserve will need to boost its target rate range to 3.75% to 4% by the end of the year.
Mr. Bullard didn’t say how he’d like to achieve this by year-end and added that he’s open to debate the tactics with his central bank colleagues. The rate setting Federal Open Market Committee meets at the end of the month in a gathering that’s certain to see another rate increase.
Very high levels of inflation have the central bank on track for a minimum increase of 75 basis points in what’s now a target rate range of between 1.50% and 1.75%. But it is also possible the Fed could raise by a full percentage point.
“It probably doesn’t make too much difference to do 100 basis points here and less in the other three meetings of this year, or to do 75 basis points here and slightly more in the remaining three meetings for the year,” Mr. Bullard said. The tactics are “a judgment that the chair can make in conjunction with the other members of the committee, including me,” he said.
Over recent days, some Fed officials have said that based on where things are right now, they are not yet inclined to further supersize a rate rise campaign that already saw action jump started last month with a three-quarters-of-a-percent point increase, the largest such move since 1994. The June consumer price index data, which Cleveland Fed leader Loretta Mester described as “uniformly bad,” caused some forecasters to say the central bank would need to move with even greater urgency.
But on Thursday, Fed governor Christopher Waller said, “You don’t want to overdo the rate hikes. A 75-basis-point hike, folks, is huge…Don’t think because you’re not going 100, you’re not doing your job.”
Data Friday gave the Fed some breathing space it might not have otherwise had. The July University of Michigan consumer sentiment survey showed that longer-term inflation expectations fell this month, at a projected 2.8% rise five years from now, down from June’s 3.1% reading.
That reading is good news for a Fed that believes expected inflation is a strong determinant of where current inflation will land. At the margin, it may take some pressure off the Fed to super aggressively raise rates later this month. ISI Evercore analysts said the Michigan data was a “lucky break for investors and the Fed.”
Mr. Bullard also said in his appearance that he remains confident the Fed can get inflation back under control without creating a recession and, given strong jobs and activity data, he doesn’t believe the U.S. is in a recession now, as some believe.
In a separate appearance, San Francisco Fed leader
told news channel Newsy that the U.S. economy is strong, hiring remains robust, and in terms of a downturn, “I don’t have recession high on my list of outcomes.”
Ms. Daly didn’t say what she wants the Fed to do at the upcoming policy meeting but did say she’s not worried the central bank is acting too aggressively with monetary policy right now.
“I’m not concerned about overcooking things” because a lot of what the Fed is doing now is simply dialing back the very aggressive level of monetary policy support it delivered during the onset of the coronavirus pandemic.
Write to Michael S. Derby at email@example.com