St. Louis Federal Reserve Chairman James Bullard said he believes the central bank can beat inflation and pleaded on Wednesday to step up the pace of the battle.
Bullard told CNBC that raising interest rates more aggressively would now give the Federal Open Market Committee charged with setting rates a better chance of bringing down inflation which, while falling from precarious 2022 levels, is always high.
“It’s become popular to say, ‘Let’s slow down and feel our way to where we need to be. We still haven’t gotten to the point where the committee has put the so-called terminal rate,” he said during a live “scream box“maintenance.” Get to that level, then experiment and see what you need to do. You’ll know when you’re there when the next move could be up or down.”
The comments come a week after Bullard and Cleveland Fed Chair Loretta Mester both said they were pushing for a half-percentage-point rate hike at the last meeting, rather than the quarter-point move that the FOMC ultimately approved.
They said they would continue to favor a more aggressive decision at the March meeting. Markets have been volatile following these remarks as well as a batch of inflation data which was higher than expected, stoking fears that the Fed still has work to do to lower prices.
But Bullard said the more aggressive move would be part of a strategy he believes will ultimately be successful.
“If inflation continues to fall, I think everything will be fine,” he said. “Our risk now is that inflation doesn’t come down and pick up, and then what do you do? We’re going to have to react, and if inflation doesn’t start coming down, you know, you risk that repeat of the 1970s. …and you don’t want to get into that. Let’s be clear now, let’s get inflation under control in 2023.”
Despite tougher talk and searing inflation data, markets still widely expect the Fed to accept the quarter-point move next month, according to CME Group Data.
Futures trading, however, indicates that the benchmark short-term borrowing rate will reach a “terminal” level of 5.36% this summer, above the estimate of 5.1%. committee members made in december but roughly in line with Bullard’s projection of a rate of 5.375%.
Investors fear that higher rates will tip the economy into recession. Major averages saw their biggest selloff of the year on Tuesday, wiping out all gains in the Dow Jones Industrial Average had done in 2023.
Dow erased its 2023 gains on Tuesday.
But Bullard said he believes “we have a good chance of beating inflation in 2023” without creating a recession.
“You have China on board. You have a stronger Europe than we thought. It looks like the US economy might be more resilient than markets thought, say six or eight weeks ago,” he said. he declared.
Investors will get another glimpse of Fed thinking later on Wednesday when the FOMC releases the January 31-February 31 minutes. 1 meeting at 2 p.m. ET.