© Reuters.
By Geoffrey Smith
Investing.com Louis Federal Reserve Bank President James Bullard said Wednesday that the Fed still needs a “sharp” tightening of monetary policy to tame, and that the bank risks a repeat of the 1970s if it doesn’t act decisively..
Pollard told CNBC: “The risks currently are that inflation may not decrease and may accelerate again, so what are we going to do? . “We’re going to have to act, and if inflation doesn’t start to come down, you know, you risk repeating what happened in the 70s where it took you 15 years trying to fight it, and we don’t want to go through that. Let’s be very tough now, and get inflation under control in 2023,” he added. .
Bullard said he expects short-term rates to peak between 5.25%-5.50%, more than half a percent higher than their current level, and noted that the recent rally in bond yields showed that more and more market participants share this view. The latest US economic data, which included a strong employment report for January and higher-than-expected inflation and retail sales figures, all reinforced suspicions that the economy still can’t break out of the boiling point as quickly as the Fed would like..
“I just think we have a very strong job market, along with more momentum going forward from the second half of 2022 than we previously thought,” Pollard said. This adds to the market’s desire for stricter pricing in the future to be able to bring down inflation in 2023.. “
He added, “Let’s hope that we will get rid of inflation in 2023, but the situation is now hotter than we thought.”“.
Bullard said he was encouraged by signs of easing inflation in retail giant Wal-Mart Stores (NYSE:)’s quarterly update on Tuesday, which indicated that customers are increasingly turning to lower-priced alternatives to their usual items. Poorer consumers in particular have now exhausted whatever savings they had during the pandemic thanks to government support measures, economists argued. As such, companies are no longer able to pass on higher input costs as easily as they were a year ago.
“Those companies that are very apathetic about their price increases – they will lose market share, maybe forever, maybe they will exit the market completely,” Pollard said.“.
