Federal Reserve Bank of St Louis President James Bullard said policymakers will likely need to raise rates to calm inflation, but said he would wait to see what the data shows before deciding what move. take in June.
“The aggressive policy we have pursued over the past 15 months has stemmed rising inflation, but it’s not so clear that we’re on a ‘path to 2%,’ Bullard told reporters afterward. of an event in Minneapolis on Friday. He said he was ready to assess the economic data as it comes in, but would need to see “significant declines in inflation” to be confident that higher rates are not not necessary.
Bullard also said he believed the U.S. central bank could still pull off a soft landing, with inflation returning to the Fed’s 2% target without triggering a significant slowdown.
“Yes, the economy could go into a recession, but it’s not the base case,” he told the Economic Club of Minneapolis. “I think the base case is slow growth, probably a bit weaker labor market and falling inflation.”
“I think you all should throw your weight behind this scenario,” he said, adding that he didn’t believe a spike in unemployment was necessary to calm inflation.
Bullard is not a voter on the Federal Open Market Committee responsible for setting rates this year.Play video
He also said Friday’s jobs report was stronger than expected and noted that job vacancies were still much higher than they were before the pandemic.
“It’s a very tight job market. It’s going to take a while to cool it down,” he said. “I think we have to be patient on that dimension and understand that.”
Data released earlier on Friday showed U.S. employers unexpectedly added 253,000 jobs last month. The jobless rate fell back to a multi-decade low of 3.4% and the average hourly wage rose 4.4% from April last year.
Fed officials raised rates by a quarter point on Wednesday to a target range of 5% to 5.25%, the highest level since 2007, while signaling that they may take a break in their meeting of June.
The move extended the most aggressive tightening campaign in decades as U.S. central bankers battle high inflation rates. Price pressures have eased from their peak but remain more than double the Fed’s target.
Bullard said he supported the Fed’s latest rate hike and said the committee’s “preponderance” wanted to see interest rates above 5%, which now puts rates in sufficiently restrictive territory.
He also played down recent stress in the banking sector, which he said can be managed, and later told reporters that he did not give as much weight as others to the idea that the banking turmoil could lead to a credit crunch that would slow the economy.
“I don’t think the effect itself is big enough to send the economy into recession,” he said.
(Adds a comment from Bullard to the third paragraph.)