Fed’s Bullard predicts more interest rate hikes and no U.S. recession
St. Louis Federal Reserve Chairman James Bullard said Wednesday that the central bank will continue to raise rates until it sees compelling evidence that inflation is falling.
The central bank official said he expects an additional hike of about 1.5 percentage points in interest rates this year as the Fed continues to battle the lowest levels of inflation high since the early 1980s.
“I think we’ll probably have to be higher for longer in order to get the evidence we need to see that inflation is actually turning around in all dimensions and convincingly declining, not just a tick lower here and there. ,” Bullard said during a live “Squawk Box” interview on CNBC.
This message of continued rate hikes is consistent with other Fed speakers this week, including regional chairs Loretta Mester of Cleveland, Charles Evans of Chicago and Mary Daly of San Francisco. Each said on Tuesday that the fight against inflation is far from over and that more monetary policy tightening will be needed.
Both Bullard and Mester are voting members this year on the Federal Open Market Committee responsible for setting rates. The group last week approved a second consecutive 0.75 percentage point increase in the Fed’s benchmark borrowing rate.
If Bullard is successful, the rate will continue to rise in a range of 3.75% to 4% by the end of the year. After starting 2022 near zero, the rate has now reached a range of 2.25% to 2.5%.
Consumer price inflation sits at a 12-month rate of 9.1%, its highest level since November 1981. Even throwing off the highs and lows of inflation, as the Dallas Fed does with his “trimmed mean” estimate, inflation is 4.3% .
“We’re going to have to see compelling evidence across the board, from headlines and other measures of underlying inflation, all coming down convincingly before we can feel like we’re doing our job,” Bullard said. .
The rate hikes come at a time of slowing growth in the United States, which has seen back-to-back quarters of negative GDP readings, a common definition of a recession. However, Bullard said he doesn’t think the economy is truly in a recession.
“We’re not in a recession right now. We have these two quarters of negative GDP growth. To some extent, a recession is in the eye of the beholder,” he said. “With all the job growth in the first half, it’s hard to say there’s a recession. With the unemployment rate steady at 3.6%, it’s hard to say there’s a recession. .”
The second half of the year should see reasonably strong growth, although job creation will likely slow down to its long-term trend, he added. Nonfarm payroll growth in July is expected to be 258,000, according to Dow Jones estimates.
Even with the trend slowing, markets are pricing in another half-percentage-point rate hike from the Fed in September, though the odds of a third straight move of 0.75 percentage points increase. The market then expects further hikes in November and December, taking the benchmark fed funds rate to a range of 3.25% to 3.5% by year-end, below the benchmark. Bullard’s goal.
“We’re going to be watching the data very carefully, and I think we’ll get it right,” Bullard said.