Federal Reserve Bank of St. Louis President James Bullard said Thursday he is considering support for another large rate rise at the central bank's policy meeting next month and added he isn't ready to say the economy has seen the worst of the inflation surge.
"We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation" and "I don't really see why you want to drag out interest rate increases into next year," Mr. Bullard said in a Wall Street Journal interview.
When it comes to the Fed's next move on interest rates, Mr. Bullard said of next month's Federal Open Market Committee meeting that "I would lean toward the 75 basis points at this point. Again, I think we've got relatively good reads on the economy, and we've got very high inflation, so I think it would make sense to continue to get the policy rate higher and into restrictive territory."
Mr. Bullard is a voting member of the FOMC this year. Since March, the Fed has embarked on an increasingly aggressive path of rate rises to lower inflation from levels that are at 40-year highs. After lifting rates from near-zero levels in March, the central bank shifted to 0.75-percentage-point rate increases at its June and July meetings, and now has its overnight target rate in a range of 2.25% to 2.5%.
The FOMC next meets Sept. 20-21. Recent data hinting at a possible waning in inflation pressures, as well as comments by some central bankers, have generated a debate among market participants as to whether the central bank can slow the pace of rate rise into the end of the year.
Mr. Bullard said he isn't ready to say inflation has peaked and it remains important for the Fed to get its target rate to a range of 3.75% to 4% by year-end, before the central bank can consider what it will need to do next year. He also said that he sees about an 18-month process of getting price pressures back to the Fed's 2% target, and predicted that path will likely be uneven, while adding, "We've got a long way to go to get inflation under control."
"The idea that inflation has peaked is, is a hope, but it's not statistically really in the data at this point," Mr. Bullard said. "I'm hopeful" the worst of the inflation surge has passed, he said, though he added he expects high inflation "to prove more persistent than what many parts of Wall Street think."
What's more, Mr. Bullard said he believes growth in the second half will be stronger than the apparent weakness seen over the first six months of the year, and he believes the job market will stay robust as well.
"There's just a lot to like about the labor market" and it's possible unemployment may tick down a touch further from the 3.5% reading seen in the July data, he said. Mr. Bullard said unemployment could even rise and still herald a robust labor sector, because an unemployment rate that has a neutral impact on price pressures is likely in the 4% range.
Mr. Bullard said that market speculation over rate cuts is "definitely premature" and that fears the economy may fall into a downturn are overblown.
The veteran central banker played down indications that financial-market conditions have been easing even as the central bank presses forward with rate increases. Tighter monetary policy is supposed to increase restraint in the economy in large part through its impact on asset prices, so an easing there in theory could force the Fed to be even more aggressive with future changes in the federal-funds rate.
Mr. Bullard said it's possible stock prices are giving a false impression of the state of asset prices.
"One thing about financial conditions that I'm steadfast about is, I don't like financial conditions indexes that put too much weight on equity pricing. Equity prices, you know, can be far from fundamentals for certain stocks," and company shares aren't a big driver of how the Fed thinks about future monetary policy choices, he said.
In a separate appearance Thursday, Minneapolis Fed leader Neel Kashkari said an economic downturn is one risk of the Fed's current policy path.
"I don't think we're in a recession right now," he said. "But as we continue to raise rates, as we continue to raise costs, so to speak, of borrowing across the economy, it should be putting, tapping the brakes on the U.S. economy, and that makes it more likely that we would end up in a recession."
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