St. Louis Fed President James Bullard said on Wednesday that the Fed’s actions in dealing with deteriorating financial conditions were paying off and that the central bank should continue raising interest rates to combat high inflation.
President Bullard attends an event in Little Rock, Arkansas. “The stress in the financial environment seems to have eased, at least for now,” he told reporters after the speech. “Therefore, it is a good time to continue fighting inflation and work to put us on a disinflationary trajectory.”
He said the tightening in credit conditions caused by the recent bank woes was not large enough to push the U.S. economy into recession, pointing to continued strong demand for loans.
“Financial conditions have tightened further,” he said in his speech, adding that “current indicators of financial stress and financial conditions are at lower levels than those seen during the 2007-09 global financial crisis.” It is staying,” he said. He credited measures taken by the Federal Reserve, such as creating an emergency bank lending facility, that appear to be working.
“Continued sound macroprudential policy can help contain financial stress, while sound monetary policy can continue to put downward pressure on inflation,” he said.
St. Louis Fed President Bullard
Photographer: Luke MacGregor/Bloomberg
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“I strongly believe that the Fed should continue on its current interest rate trajectory and ensure disinflation this year and next, so that inflation can be left behind while maintaining a strong labor market,” Bullard said. said after the event.
He will not have voting rights at this year’s Federal Open Market Committee (FOMC) meeting.
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“Inflation going forward will be entrenched and it will be difficult to push back to the 2% target,” he said. “That’s why we have to keep going,” he said.
He said the recent sharp drop in bond yields will soften the headwinds to the U.S. economy from the turmoil in the banking sector.
The 10-year Treasury yield has fallen 50 basis points (bp, 1 bp = 0.01%) in recent weeks and the 2-year yield has fallen 100 basis points, he said. “This could help mitigate some of the negative macroeconomic impacts that could follow after a period of heightened financial stress,” he said.
Original title:Bullard Plays Down Credit Crunch, Says Fed Must Fight Inflation(excerpt)
(Update with President Bullard’s remarks)
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