The president of the Federal Reserve Bank of St. Louis, James Bullard, has called for more aggressive measures to combat inflation and reduce the size of the Fed’s balance sheet. “The burden of excessive inflation is particularly heavy for people with modest incomes and wealth and for those with limited ability to adjust to a rising cost of living,” he stressed.
Fed’s Bullard Pushes for More Aggressive Rate Hikes to Better Manage Economic Situation
St. Louis Federal Reserve Bank President James Bullard issued a statement Friday regarding his dissenting vote at last week’s Federal Open Market Committee (FOMC) meeting.
At the meeting, the FOMC decided to “raise the target range for the federal funds rate by 25 basis points to 0.25% – 0.50%,” Bullard explained, adding:
In my view, raising the target range to 0.50% – 0.75% and implementing a plan for reducing the size of the Fed’s balance sheet would have been more appropriate actions.
Bullard, an economist, has served as the President of the Federal Reserve Bank of St. Louis (Federal Reserve Bank of St. Louis) since 2008. He reiterated that in his judgment, “a 50-basis-point upward adjustment to the policy rate would have been a better decision for this meeting.”
He explained that the FOMC “has a mandate to provide stable prices for the U.S. economy and a 2% inflation target stated in terms of headline PCE (personal consumption expenditures price index) inflation.”
Noting that “Headline PCE inflation measured from one year earlier is currently 6.1%, and the associated core PCE inflation rate, which ignores food and energy components, stands at 5.2%,” the St. Louis Fed president stated: “The committee is missing its target by 410 basis points on the headline measure and 320 basis points on the core measure.” He opined:
Excessive inflation can be especially devastating for individuals with lower incomes and limited financial resources, and those who have difficulty adapting to an increasing cost of living.
“The committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation … U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower,” Bullard detailed, emphasizing:
This situation will require the committee to act quickly or lose credibility in its pursuit of inflation targets.
Bullard added:
The committee should aim to increase the policy rate by at least 3% in this year’s fiscal year. This would allow the policy rate adjust quickly to be more in line with current conditions.
Ten FOMC members projected a fed funds rate of 1.75%-2% by year’s end, according to the projections they submitted in conjunction with the meeting last week. The eight highest predictions indicated a range from 3% to 3.25%.
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