Bullard: Disinflation prospects ‘good’ but not guaranteed

The president of the Bank of Federal Reserve of St. Louis, James Bullard, one of the first officials of the central bank of USA who was in favor of rapidly raising interest rates to curb rising inflation, expressed moderate optimism on Friday regarding the results of the hikes.

“Monetary policy is now at the lower end of what might be considered tight enough given current macroeconomic conditions,” Bullard said in remarks prepared for a conference on monetary policy at the Hoover Institution.

Government aid during the pandemic that helped fuel inflation has been mostly spent, and the official interest rate on the Federal Reserve, which was close to zero 14 months ago, is now between 5% and 5.25% and is beginning to weigh on the economy.

Expectations for price increases, which had risen last year, have returned to levels that Bullard says are consistent with the Federal Reserve’s 2% inflation target.

Even so, bullard noted that households have about $400 billion more in savings than was typical in pre-pandemic times, which could fuel higher inflation; and the “zone” that constitutes sufficiently restrictive rates can fluctuate based on incoming data.

Accordingly, he said, “Continued disinflation prospects are good, but not guaranteed.”

Fed Chairman, Jerome Powell, He noted that a pause might be the right move while the Fed assesses the progress of inflation and the impact of recent banking sector stress on credit conditions.

Bullard said earlier this month that he has an open mind about June, although rates may have to go higher. In his speech on Friday he did not refer specifically to the June meeting.