St. Louis Federal Reserve Chairman James Bullard said Thursday the central bank still has work to do before it gets inflation under control.
As a voting member on the rate-setting Federal Open Market Committee, Bullard delivered remarks that focused on a rules-based approach to policy making. Applying the standards set by Stanford economics professor John Taylor, Bullard insisted that the Fed’s steps so far have been insufficient.
“So far, the change in monetary policy stance appears to have had a limited impact on observed inflation, but market prices suggest that disinflation is expected in 2023,” he said.
Even using what he called “generous” assumptions about the Fed’s progress on inflation control to date, he noted in a series of slides that “the policy rate is not yet in a range that could be considered sufficiently restrictive.”
“In order to reach a sufficiently restrictive level, the policy rate needs to be raised further,” he added in the presentation.
Recent data suggest that the pace of inflation may be slowing. The CPI for October rose 0.4%, below market expectations, and the year-on-year pace has slipped to 7.7%, below the 41-year high hit in the summer but still well above the Fed’s target of 2 %. Another measure favored by Fed officials has Core inflation excluding food and energy at 5.1% annually, but that still does not meet the target.
There is little or no disagreement about the Fed about whether interest rates need to rise further. Most members have proposed a few more hikes over the next few months that will take the central bank’s overnight reference rate to around 5% from its current target range of 3.75%-4%.
However, Bullard’s presentation argued that 5% could serve as the lower range for the required policy rate and that the ceiling could be closer to 7%. That’s a far cry from current market prices, which also see the fed funds rate surpassing around 5% by mid-2023.
That Taylor rule, as it is known, provides a link between what the policy rate needs relative to inflation and economic growth. inflation growth has declined lately but the annual rate remains about the highest in more than 40 years.
Bullard’s comments follow comments from several other Fed officials who have expressed the need to keep the heat on inflation, though several said policymakers could ease off the level of recent hikes. The Fed has approved four consecutive 0.75 percentage point rate hikes and markets are broadly expecting the December FOMC meeting to deliver a 0.5 percentage point hike.
Despite supporting continued rate hikes, Kansas City Fed Chair Esther George said the Wall Street Journalin a report on Wednesday that she is concerned about the impact tightening policies could have on the economy.
“I haven’t seen a period of this type of tightening in my 40 years at the Fed without painful results,” George told the Journal, listing a “contraction” as part of the possible outcomes.
George is also a constituent in the FOMC.
In other recent comments, Fed Governor Christopher Waller said Wednesday he was open to the idea of ”resigning” the level of rate hikes, but added that he needs to see more evidence before being convinced by the latest data suggesting inflation has plateaued.
San Francisco Fed President Mary Daly also told CNBC on Wednesday She expects further rate hikes and that even with smaller rate increases, a “break is off the table”.
Another set of Fed speakers is available for Thursday, including several regional presidents and Gov. Michelle Bowman.