Federal Reserve President St. Louis James Bullard expressed confidence that the central bank can beat inflation and on Wednesday argued for a faster pace in the battle.
Bullard told CNBC that more aggressive rate hikes now would give the Federal Open Market Committee, which sets rates, a better chance to reduce inflation, which, while falling somewhat from uncertain levels in 2022, is still 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 set the so-called terminal rate,” he said during the live broadcast.Squawk Box” interview. “Get to this level and then feel yourself and see what you have to do. When you’re there, you’ll know when the next move might be up or down.”
The comments come a week after Bullard and Cleveland Fed President Loretta Mester said they were pushing for a half-percentage-point rate hike at the latest meeting, rather than the quarter-point move the FOMC ultimately approved.
They said they would continue to favor a more aggressive move at the March meeting. markets were volatile following these remarks as well batch of inflation data which were higher than expected, raising concerns that the Fed still has more work to do to cut prices.
But Bullard said the more aggressive move will be part of a strategy he believes will ultimately be successful.
“If inflation continues to come down, I think we’ll be fine,” he said. “Our risk is that inflation doesn’t come down and it picks up again, and then what do we do. We’re going to have to respond, and if inflation doesn’t come down, you know, you risk this repeat of the 1970s where you had 15 years and you’re trying to fight the brake and you don’t want let’s get into it. Let’s be sharp, let’s get inflation under control in 2023.”
Despite the tougher talk and tepid inflation data, markets still largely expect the Fed to initiate a quarter-point hike next month. CME Group data.
But futures trading suggests the benchmark short-term borrowing rate will peak this summer at a “final” level of 5.36%, higher than the estimate of 5.1%. committee members in December but roughly in line with Bullard’s rate projection of 5.375%.
Investors worry that higher rates could plunge the economy into recession. The major averages saw their biggest selloff of the year on Tuesday, erasing all gains Dow Jones Industrial Average produced in 2023.
The 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.
“You’ve got China on board. You’ve got a stronger Europe than we thought. It kind of looks like the US economy might be more resilient than the markets thought, say, six or eight weeks ago,” he said.
Investors will get another look at the Fed’s thinking later Wednesday when the FOMC releases its January 31-February 31 minutes. 1 meeting at 2pm ET.