Federal Reserve Bank of St Louis President James Bullard said policymakers will probably have to push rates higher to cool inflation, but said he would wait and see what the data show before deciding what move to support in June.
“The aggressive policy we pursued in the last 15 months has stemmed the rise in inflation, but it is not so clear we are on” a path to 2%, Bullard told reporters following an event in Minneapolis Friday. He said he is willing to assess the economic data as it comes in, but would need to see “meaningful declines in inflation” to be convinced higher rates aren’t necessary.
Bullard also said he thinks the US central bank can still achieve a soft landing, with inflation returning to the Fed’s 2% target without triggering a significant downturn.
“Yes, the economy could go into recession, but that’s not the base case,” he told the Economic Club of Minneapolis. “I think the base case is slow growth, probably a somewhat softer labor market and declining inflation.”
“I think all of you should put most of your weight on that scenario,” he said, adding he did not think a surge in unemployment was needed to cool inflation.
Bullard is not a voter on the rate-setting Federal Open Market Committee this year.Play Video
He also said Friday’s jobs report was stronger than expected, and noted that job openings are still much higher than they were before the pandemic.
“This is a very tight labor market. It’s going to take a while to cool it off,” he said. “I think we have to be patient on that dimension and understand that.”
Data released earlier Friday showed US employers added an unexpectedly solid 253,000 jobs last month. The unemployment rate fell back to a multi-decade low of 3.4%, and average hourly earnings rose 4.4% from April last year.
Fed officials raised rates by a quarter point on Wednesday to a 5%-5.25% target range, the highest level since 2007, while signaling they could pause at their meeting in June.
The move extended the most aggressive tightening campaign in decades as US central bankers fight generation-high rates of inflation. Price pressures have eased from their peak but remain more than double the Fed’s target.
Bullard said he supported the Fed’s most recent rate increase, and said the “preponderance” of the committee wanted to see interest rates above 5%, which now puts rates in the territory of being sufficiently restrictive.
He also played down recent stress in the banking sector, which he said can be managed, and later told reporters he didn’t put as much weight as others on the idea that the bank turmoil could lead to tighter credit that slows the economy.
“I don’t think the effect by itself is big enough to send the economy into recession,” he said.
(Adds Bullard comment in third paragraph.)