- St. Louis Fed President James Bullard told CNBC that a more aggressive rate hike now would give the FOMC a better chance of curbing inflation.
- The central bank official also said he thinks “we have a good chance of beating inflation in 2023” without triggering a recession.
- Bullard argues for a top rate of almost 5.4%, roughly in line with the market.
James Bullard, president of the St. Louis Federal Reserve, expressed confidence that the central bank can beat inflation and pleaded Wednesday to pick up 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 curbing inflation, which, while slightly off the precarious 2022 level, is still high.
“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 commission has introduced the so-called terminal rate,” he said during a live Squawk Box interview. “Go to that level and then feel what you need to do. You know when you’re there when the next step could be up or down.”
Those comments come a week after Bullard and Cleveland Fed President Loretta Mester both said at the last meeting they pushed for a rate hike of half a percentage point, rather than the quarter-point step that the FOMC eventually approved.
They said they would continue to favor a more aggressive move at the March meeting. Markets have been volatile in the wake of those comments and a string of higher-than-expected inflation data, fueling fears the Fed has more 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 we will be fine,” he said. “Our risk now is that inflation doesn’t come down and it picks up again and then what do we do. We’re going to have to react, and if inflation doesn’t start coming down, you risk this repeat of the 1970s where you’ve had 15 years and you’re trying into the fray, and you don’t want to get into that. Let’s be sharp now, let’s get inflation under control in 2023.”
Despite the tougher talks and hot inflation numbers, markets still largely expect the Fed to agree to the quarter-point move next month, according to data from the CME Group.
However, futures trading indicates that the benchmark for short-term lending will come in this summer at a “closing” level of 5.36%, higher than the 5.1% estimate made by committee members in December, but roughly in line with Bullard’s projection of a 5.375% rate.
Investors fear that higher interest rates could push the economy into recession. Major averages saw their biggest sell-off of the year on Tuesday, erasing any gains the Dow Jones Industrial Average had made in 2023.
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 have China on board. You have a stronger Europe than we thought. It seems that the US economy is more resilient than the markets thought, say six or eight weeks ago,” he said.
Investors will get another glimpse into the Fed’s thinking later Wednesday, when the FOMC releases its January-February 31 minutes. 1 meeting at 2pm ET.
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