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Bullard Says Fed May Need to Raise Rates Above 2% to Curb Prices

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© Bloomberg. James Bullard, president and chief executive officer of the Federal Reserve Bank of St. Louis, gestures while speaking at the 2019 Monetary and Financial Policy Conference at Bloomberg’s European headquarters in London, U.K., on Tuesday, Oct. 15, 2019. Bullard said U.S. policy makers are facing too-low rates of inflation and the risk of a greater-than-expected slowdown, suggesting he’d favor an additional interest rate cut as insurance.
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(Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said bringing down inflation may require the central bank to overshoot a neutral target interest rate, which he sees as about 2%.

“If you wanted to put downward pressure on inflation, you’d actually have to get to neutral — go beyond neutral,” Bullard said at an event by hosted by Columbia University and SGH Macro Advisers in New York on Thursday. “And I think that’s a major concern of mine — we’re not really in a position to do that right now, but we have to get in a position to do that” in case inflation doesn’t moderate as expected, he said.

Bullard repeated his view that Fed should raise interest rate by 100 basis points by July 1, and start balance-sheet run-off in the second quarter, in response to the fastest inflation in 40 years. Even with those increases, the Fed would be well below the rate Bullard sees as neutral, while his colleagues on the Federal Open Market Committee view 2.5% as a long-term target interest rate, according to the median of their December projections.

Federal Reserve officials concluded in January that they would start raising interest rates soon and were on alert for persistent inflation that would justify a faster pace of tightening, according to minutes of the Jan. 25-26 meeting released Wednesday. While the Fed staff has projected that inflation will be around 2.6% this year, Bullard said policy makers need to be prepared for price surges that persist.

“We have to manage the risk that it does not dissipate, as some people might hope,” Bullard said.

©2022 Bloomberg L.P.

Bullard Says Fed May Need to Raise Rates Above 2% to Curb Prices

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