ATLANTA (BLOOMBERG) - Federal Reserve Bank of St Louis president James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5 per cent this year with multiple half-point hikes and that it should not rule out rate increases of 75 basis points.
"More than 50 basis points is not my base case at this point," Mr Bullard said in a virtual presentation to the Council on Foreign Relations on Monday (April 18), adding that the Fed under Mr Alan Greenspan did such a hike in 1994, leading to a decade-long expansion.
"I would not rule it out, but it is not my base case here," he added.
Fed chair Jerome Powell has said that a 50-basis point increase is possible at the Fed's May 3 to 4 meeting. Comments by colleagues since then have hardened expectations they will make that move, as officials extend a hawkish pivot to curb the hottest inflation since 1981.
Mr Bullard repeated that he favours an interest rate of about 3.5 per cent, citing a version of the Taylor rule, a guideline developed by Stanford University's Professor John Taylor that uses inflation, the unemployment rate and an estimate of the neutral interest rate - a rate neither contractionary nor expansionary - to come up with his estimate.
"You can't do it all at once, but I think it behoves us to get to that level by the end of the year," Mr Bullard said.
The Federal Open Market Committee's first goal should be getting to a neutral rate soon, Mr Bullard said. The committee estimates that rate at about 2.4 per cent.
"We want to get to neutral expeditiously, I guess is the word of the day," he said, repeating a word used by a number of colleagues. "I have even said we want to get above neutral as early as the third quarter and try to put further downward pressure on inflation at that point."
The St Louis Fed official said talk about recession was premature, with the Fed having only raised rates once at this point. He predicted that the United States economy would grow at a healthy rate in excess of its long-term trend both in 2022 and 2023, adding that he expects unemployment to fall below 3 per cent.
Minutes of their March meeting showed that many Fed officials favoured raising rates by a half point and opted for the more cautious 25-basis point move only because of the uncertainty around Russia's invasion of Ukraine.
The account showed officials expect to start shrinking their balance sheet by US$95 billion (S$129 billion) a month, or more than US$1 trillion a year, and could announce a decision in May. That could mean roll-off as soon as June, Fed governor Lael Brainard said on April 12.
