The Fed’s Bullard says rate hikes have had “only limited effects” on inflation so far

Louis Federal Reserve Chairman James Bullard said Thursday that the central bank still has a lot of work to do before it gets inflation under control.

A voting member of the rate-setting Federal Open Market Committee, Bullard delivered remarks centered on a rules-based approach to policy making. Using criteria set by Stanford University economics professor John Taylor, Bullard insisted that the Fed’s moves so far are insufficient.

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He said, “So far, the change in monetary policy stance seems to have had only limited effects on observed inflation, but market prices indicate that inflation is expected to decline in 2023.”

Even using what he described as “generous” assumptions regarding the Fed’s progress so far in its battle against inflation, it noted in a series of slides that “the policy rate is not yet in an area that would be considered restrictive enough.”

“To get to a sufficiently restrictive level, the interest rate needs to increase further,” he added in the presentation.

There is little, if any, opposition to the Fed on whether interest rates need to continue to rise. Most of the members proposed some additional increases over the next several months which would bring the central bank’s overnight borrowing rate to around 5% from the current target range of 3.75%-4%.

However, Bullard’s offer argued that 5% could serve as the low range for where the money rate should be, and that the upper limit could be closer to 7%. This is out of sync with current market rates, which also see the fed funds rate topping out around 5%.

Taylor’s rule, as it is known, establishes a link between the money rate compared to inflation and economic growth. Inflation has eased recently, but the annual rate is still near its highest rate in more than 40 years.

Bullard’s comments follow those of several other Fed officials who have expressed the need to keep the heat on inflation, though several said policymakers could backtrack a little on the level of the recent increases. The Fed has approved four consecutive 0.75 percentage point rate increases, and markets widely expect the December meeting to yield a 0.5 percentage point move.

Despite support for continued interest rate increases, Kansas City Federal Reserve Bank President Esther George he told the Wall Street JournalIn a report dated Wednesday, it said it was concerned about the impact of policy tightening on the economy.

“Never in my 40 years with the Fed have I seen a time of this kind of tightening that didn’t have some painful results,” George told the newspaper, listing “deflation” as part of the possible outcomes.

George is also a voter on the Federal Open Market Committee.

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