In an online event organized by the Economic Club of Memphis, the leader stressed that the monetary authority must raise interest rates quickly to control the recent inflationary escalation in the United States.
In his vision, raising the basic rate gradually throughout this year and next would not be adequate. “If inflation is under control, we can cut interest rates at the end of 2023 or in 2024,” he stressed.
Bullard, who has voting rights at FOMC meetings this year, said he expects the Fed will be able to reduce inflation “over the next few quarters or years.” For him, there is no evidence of a wage hike spiral in the US.
The leader added that he does not foresee a recession in the country’s economic horizon and pointed out that the war in Ukraine has a stronger impact in Europe. In his understanding, the dollar will not lose its status of hegemonic currency in the world in the short term.
The president of the Federal Reserve district in St. Louis also argued that the current macroeconomic situation in the United States is undermining the credibility of the monetary authority with regard to the ability to keep inflation at the 2% target.
He explained that benchmark market rates have already risen above pre-pandemic levels, unlike U.S. CB interest rates. “The Fed still needs to ratify the forward guidance established earlier, but the effects on the economy and inflation are already emerging,” he pointed out.
Bullard recalled that before the health crisis, Gross Domestic Product (GDP) was growing at 2.6%, PCE inflation was at 1.5%, and the unemployment rate was at 3.6%. “This can provide a practical benchmark for where the rate constellation can settle when inflation is under control in the U.S.,” he pointed out.
The Fed regional leader added that although they are low, inflation expectations can still advance.
According to him, the monetary authority has already raised interest rates and promised to make further hikes, in addition to reducing the asset balance sheet. “Forward guidance on these dimensions is helping the Fed move policy more quickly to the degree needed to keep inflation under control,” he assessed.