(Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said he supports the central bank’s plan to raise interest rates in half-percentage-point steps at coming meetings, arguing that this will tackle an inflation rate that’s near a four-decade high.
“The chair has said it looks like we are on course for 50 basis points at the next, the coming meetings,” Bullard said Tuesday in a moderated question-and-answer period before the Energy Infrastructure Council. He said that there were risks facing the outlook and the situation can shift, “but I think we have a good plan for now.”
The Fed raised rates by 50 basis points earlier this month and Chair Jerome Powell signaled it was on track to make similar-sized moves at its meetings in June and July, a plan that both hawks and doves on the policy-setting Federal Open Market Committee have since embraced.
Bullard, who has been the most outspoken US central banker this year advocating for more muscular measures to curb surging prices, didn’t mention the possibility of a 75 basis-point hike when the moderator asked him if the Fed should consider “much more dramatic action in the near term.”
In the past, Bullard has said that could be an option and has spoken approvingly of a 75 basis-point increase deployed by then-Fed Chair Alan Greenspan in 1994.
The St. Louis Fed chief also said the US central bank was less behind in its fight against inflation than critics claim, because financial markets have already moved substantially pricing in future rate hikes, doing some of the job of tightening prior to the central bank acting.
Officials this month announced they would start shrinking their $9 trillion balance sheet from June 1 at a pace that will step up quickly to $95 billion a month. Bullard noted that this would also withdraw support for the economy, at a time when other central banks were doing the same thing, and it wasn’t clear how much of a squeeze this “global quantitative tightening” would have.
“All else equal, that should put upward pressure on longer-term yields,” he said. “We certainly have seen that so far. There should be more of that ahead as we proceed and we’ll watch this carefully going forward.”
Concerns that the Fed could trigger a recession as it raises rates have roiled stocks in recent weeks. But Bullard said he expects a “fairly good performance” for the US economy this year and next, supported by pent-up household spending and a tight labor market.
“It looks like above-trend growth for the U.S. economy is the best base case to have,” he said. “US labor markets are super strong.”
Data released on Tuesday as Bullard spoke showed US retail sales grew at a solid 0.9% pace in April, reflecting broad-based gains and suggesting demand for merchandise remains resilient despite rampant inflation.
While policy makers have said it might take both skill and some luck for the U.S. economy to achieve a soft landing of lower growth and stable prices, Bullard said, “Luck favors the prepared.”
“This is about risk management and the risk is all to the upside on inflation,” he added. “I wouldn’t advocate crossing our fingers. You have to have the risk management in place to guard against those cases, understanding that you face uncertainty in the world.”
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Fed Has ‘Good Plan’ With Its Half-Point Rate Hikes, Bullard Says