St. Louis Fed President Bullard Dismisses Recession Talk, Favors Further Rate Hikes

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St. Louis Federal Reserve President James Bullard has said that the US central bank should continue to increase interest rates, despite concerns of a banking crisis or a recession. Bullard's comments follow suggestions that the US could be heading towards a recession or a banking crisis. Bullard disagrees, saying that investors may see rate cuts in the Fed's future, but "the labor market just seems very, very strong." Despite a 3.5% unemployment rate, Fed staff at the central bank's March 21-22 policy meeting said they also anticipate a "mild recession" this year. Bullard's comments come amidst a debate among the Fed about how to calibrate the final steps of a historically fast rate hiking cycle.

Bullard believes that the policy rate will need to rise another half a percentage point beyond the current level, to between 5.50% and 5.75%, despite concerns that this could push the economy into a recession. Bullard thinks that the economy is heading in the right direction, saying that inflation will decrease and the strong labor market will feed consumption, and that people, businesses, and local governments still have pandemic-era savings to spend.

Bullard's remarks stake out the aggressive side of a debate underway at the Fed about how to calibrate the final steps of an historically fast rate hiking cycle against both evidence that underlying inflation is not falling very fast towards the central bank's 2% target and signs the economy is slowing under the "bite" of the rate increases approved so far.

The debate will continue, as the Fed will have to send a signal about what happens next once the interest rates reach a level that is considered "sufficiently restrictive" to slow inflation. Bullard suggests that once this happens, he believes "the bias would be higher for longer" to ensure that inflation is fully under control. However, Bullard thinks that the fewer promises made, the better, and that the Fed needs to be responsive to incoming data through the summer and into the fall.

Bullard thinks that the economy is moving in the right direction and that inflation will decrease over time. He disagrees with forecasts of a recession and a banking crisis, citing the strong labor market and the pandemic-era savings that have yet to be spent.

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