Feds Bullard: Further rate increases would “lock in” disinflation

By Howard Schneider

WASHINGTON (Reuters) – Continued Federal Reserve rate increases will “lock in” slowing inflation even with continued economic growth, St. Louis Federal Reserve President James Bullard said on Thursday.

Bullard said it is likely that the economy will slow and the unemployment rate rise towards its “longer-run natural level,” something economists define as consistent with stable inflation and in the case of the United States estimated by Fed policymakers as around 4%.

The unemployment rate as of January was 3.4%.

But Bullard said that even as inflation remained high and economic output above potential, a “disinflationary” process had begun and could continue with additional Fed rate increases.

Bullard said that recent data showing inflation slowing less than market expectations was “consistent” with his outlook that the battle to cool the pace of price increases will be a long one, and had not so far changed his view that a Fed policy rate in the range of 5.25% to 5.5% would be adequate for the job.

That is slightly higher than the 5% to 5.25% rate penciled in by his colleagues as of December.

The policy rate currently is set in a range of 4.5% to 4.75% following approval of a quarter point increase at the Feds last policy session. Officials will issue new policy and economic projections after an upcoming March 21-22 meeting.

Bullard said he advocated for a half-point increase at the Feds last session in order to reach an adequately restrictive level “as soon as we could.”

But he also said that he felt inflation was beginning to slow, and that the Fed could keep that process underway with further rate increases even at the slower pace favored by most officials.

After raising rates last year at the fastest pace since the 1980s, “in broad macro terms it probably does not make too much difference” how fast the Fed moves from here, he said.

“The U.S. economy is growing faster than previously thought, and labor market performance remains robust with unemployment below its longer-run natural level,” Bullard said. “Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low.”

(Reporting by Howard Schneider; Editing by Chizu Nomiyama and Andrea Ricci)