U.S. inflation is “far too high,” St. Louis Federal Reserve Bank President James Bullard said on Monday as he repeated his case for increasing interest rates to 3.5 per cent by the end of the year to slow what are now 40-year-high inflation readings.
“What we need to do right now is get expeditiously to neutral and then go from there,” Bullard said at a virtual event held by the Council on Foreign Relations. But with economic growth expected to remain above its potential, he added, the economy won’t fall into recession and the unemployment rate, now at 3.6 per cent, will likely drop below 3 per cent this year.
The Fed raised its target policy rate a quarter-of-a-percentage point last month, and Fed forecasts released at the time showed policy-makers expected rates to rise to 1.9 per cent by year-end. Bullard’s preferred rate path would require half-point interest rates hikes at all six of the Fed’s remaining meetings this year.
The likely rate path is probably somewhere in between, based on interest-rate futures contracts, which are currently pricing in a year-end policy rate range at 2.5 per cent-2.75 per cent.
Bullard said he also wants to begin reducing the Fed’s balance sheet at an upcoming meeting, though he said he did not see a need to start selling bonds unless inflation does not recede as the Fed expects.
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