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Bullard Says Fed May Need to Raise Rates Above 2% to Curb Prices -Breaking

by Mike Robinson

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© Bloomberg. James Bullard is the president and chief executive of the Federal Reserve Bank of St. Louis. He gestures during his speech at the 2019 Monetary and Financial Policy Conference in London (U.K.) on Tuesday Oct. 15, 2019. Bullard said U.S. policy makers are facing too-low rates of inflation and the risk of a greater-than-expected slowdown, suggesting he’d favor an additional interest rate cut as insurance.

(Bloomberg] — James Bullard, President of Federal Reserve Bank of St. Louis said that to reduce inflation the central bank might need to go above a neutral target rate. Bullard sees this as being around 2%.

“If you wanted to put downward pressure on inflation, you’d actually have to get to neutral — go beyond neutral,” Bullard said at an event by hosted by Columbia University and SGH Macro Advisers in New York on Thursday. “And I think that’s a major concern of mine — we’re not really in a position to do that right now, but we have to get in a position to do that” in case inflation doesn’t moderate as expected, he said.

Bullard reiterated that Fed should raise the interest rate by 100bps by July 1. The Fed would then start balance-sheet running-off in quarter 2. This is in response to 40 year-old inflation. However, even with the increases, Fed will remain well below Bullard’s neutral rate. His colleagues from the Federal Open Market Committee consider 2.5% to be a long-term goal interest rate, as per the median of their December projections.

According to the minutes from Wednesday’s Jan. 25-26 meeting, Federal Reserve officials decided in January they would soon raise interest rates and would be on high alert for any persistent inflation. Bullard stated that while the Fed has predicted that inflation would be at 2.6% in 2019, policymakers need to be ready for any price rises.

“We have to manage the risk that it does not dissipate, as some people might hope,” Bullard said.

©2022 Bloomberg L.P.

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