By Howard Schneider

(Reuters) Despite increases in interest rates on mortgages and yields from government bonds, the Federal Reserve is still behind inflation fighting efforts. This was despite James Bullard, St. Louis Fed President, stating Thursday.

Bullard, in prepared remarks made to University of Missouri, stated that even a “generous” interpretation of the Fed’s current short-term rate would show it should be higher than the range of 0.25% to 0.5%.

Bullard stated that “U.S. inflation is extremely high” and was comparable to the levels of 1974 and 1983, when central banks lost control over price rises and had to resort to painfully low interest rates to create a recession.

Current headline inflation is 6.4%. That’s triple the Fed’s goal of 2%. An alternative measure of core prices is 5.4%, which does not include volatile energy and food costs.

Bullard admitted that current Fed policy rates do not capture the financial tightening that has already occurred in the markets, based upon investors’ expectation that the Fed would act more aggressively over the next months. For example, the 2-year Treasury yield has increased from 1.45% to 2.45% Thursday morning. The 30-year interest rate for a home loan is now at 5%, compared with recent lows of 3%.

Bullard stated that this “still leaves Fed behind the curve”, noting that central banks now have to “ratify” the market’s beliefs by agreeing on future rate hikes.

In his prepared remarks, Bullard didn’t expand upon his calls for half-point, faster rate increases at certain sessions or his view of the plans to reduce balance sheets detailed in Fed minutes on Wednesday.

Minutes showed Fed officials agreeing that rates should be raised by more than the normal quarter-point increase. A balance sheet plan that would see the Fed trimming its asset holdings by approximately $95 Billion per month had overnight driven long-term interest rate higher. It also reflected tightening financial conditions.