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The Fed: Fed’s Bullard favors getting interest rates above 5%, but said the pace is not a critical issue

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The Federal Reserve’s policy of “front-loading” interest-rate hikes last year was a success and should be continued, but the issue is not so critical as it had been, said St. Louis Fed President James Bullard, on Thursday.

Getting interest rates above 5% is needed to put downward pressure on inflation, Bullard said, in a streamed discussion with bankers from several Midwestern states.

“My preference is it would be appropriate to get there as soon as possible,” Bullard said. “I don’t see any purpose in dragging things out,” he said.

But Bullard added that the “tactics” of future moves don’t matter so much to the overall economy.

Bullard was a voting member of the Fed’s interest-rate committee last year.

The Fed raised its benchmark rate by 50 basis points in December to a range of 4.25%-4.5%. That was a slower pace than four 75 basis point hikes over the summer and fall.

The Fed has penciled in 75 basis points of additional rate hikes in 2023.

In the last few days, some of Bullard’s colleagues have said they would like the Fed to slow the pace of rate hikes to quarter-point moves. Fed Chairman Jerome Powell has not weighed in on the subject.

The officials who want to move slowly argue it will allow the Fed to gauge how their actions are affecting the economy.

In his talk, Bullard said the December consumer price inflation data was “encouraging. “

See: Inflation slows again and clears path for slower Fed rate hikes

But he warned that inflation was unlikely to fall “in a straight line” and that markets have not priced in the risk of a reversal.

But Bullard repeated he thinks 2023 will be remembered as a year that inflation moved lower.

The St. Louis Fed president was optimistic about the health of economy and said strong growth in the last six months of 2022 would provide some cushion for the economy to remain resilient and avoid a recession.

Looking ahead, Bullard said he thought that the level of the Fed’s benchmark rate would be higher than the ultra-low policy rates seen in the wake of the financial crisis.

“We are moving into an era of higher nominal interest rates for quite a while,” he said.

Stocks
DJIA,
+0.88%

SPX,
+0.58%

moved higher after Bullard’s comments. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.477%

fell to 3.49%.

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