The Fed’s James Bullard is pushing for quicker fee hikes and sees a “good likelihood” of beating inflation
James Bullard, President of the St. Louis Federal Reserve, expressed confidence in the central bank’s ability to fight inflation and on Wednesday advocated increasing the pace in the fight.
Bullard told CNBC that a more aggressive rate hike now would give the rate-setting Federal Open Market Committee a better chance of bringing down inflation, which, while falling somewhat from precarious 2022 levels, is still elevated.
“It’s become popular to say, ‘Let’s slow down and make our way to where we need to be.’ We’re still not at the point where the committee has set what we call the final rate,” he said during a live interview with Squawk Box. “Get to that level and then feel around and see what you’re doing You’ll know when you’re there when the next step up or down might be.”
The comments come a week after Bullard and Cleveland Fed Chair Loretta Mester both said they were pushing for a half-point rate hike at the last meeting, rather than the quarter-point move that the FOMC ultimately approved.
They said they would still prefer a more aggressive move at the March meeting. Markets were volatile following the comments, as well as a string of higher-than-expected inflation data, fueling fears that the Fed will have to do more to cut prices.
But Bullard said the more aggressive move would be part of a strategy he believes will ultimately succeed.
“If inflation keeps falling, I think we’ll be fine,” he said. “Our risk now is that inflation doesn’t come down and picks up again, and then what do you do? We have to react, and if inflation doesn’t go down, you risk this repeat of the 1970s… and you don’t want to respond to that. Now let’s be sharp, let’s get inflation under control in 2023.
Despite the tougher talk and hot inflation data, markets still largely expect the Fed to make the quarter-point move next month, according to CME Group.
However, futures trading suggests that the benchmark short-term interest rate will be at a “terminal” level of 5.36% this summer, higher than committee members’ estimate of 5.1% in December but roughly in line with Bullard’s forecast of 5.375% rate.
Investors fear that higher interest rates could plunge the economy into recession. The major moving averages experienced their biggest selloff of the year on Tuesday, erasing all gains Dow Jones industry average made in 2023.
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Dow erased its 2023 gains on Tuesday.
But Bullard said he thinks “we have a good chance of beating inflation in 2023” without triggering a recession.
“They brought China on board. You have a stronger Europe than we thought. It seems like the US economy is more resilient than markets thought say six or eight weeks ago,” he said.
Investors will get another glimpse of the Fed’s deliberations later on Wednesday when the FOMC releases Jan. 31-February 2 minutes. 1 meeting at 2 p.m. ET.