(Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said policymakers should raise interest rates to at least 5% to 5.25% to curb the highest inflation in nearly 40 years.
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“In the past I’ve said 4.75%-5%,” he told reporters Thursday after a speech in Louisville, Kentucky. “Based on this analysis today, I would say 5%-5.25%. That’s a minimum level. According to this analysis that would at least put us in the zone.”
Chairman Jerome Powell said earlier this month that disappointing data will make it necessary to raise rates more than previously expected, while suggesting that officials may moderate the size of their hikes in the future. . Key inflation readings since then have been better than expected but officials continue to stress the need to keep raising rates.
Officials in September projected rates rising to around 4.6% next year from a current target range of 3.75%-4%. Those projections will be updated at the Fed’s December 13-14 meeting.
San Francisco Fed President Mary Daly said on Wednesday that “somewhere between 4.75 and 5.25 seems reasonable to think about” for the level at which officials should raise rates to then suspend.
During his presentation, Bullard showed charts showing that rates need to be between about 5% to 7% to meet policymakers’ goal of being “tight enough” to curb inflation near four-quarters. year.
The calculation used different versions of the Taylor Rule, a popular monetary policy guideline developed by John Taylor of Stanford University.
“It’s easy to make arguments that you would have to go to much higher levels of the policy rate” than 5.25%, said Bullard, who voted on policy this year. “But at the moment I would be happy to reach the minimum level and that’s why I think the committee will have to do more.”
The head of the St. Louis Fed, who has been among the most hawkish policymakers this year, was the latest central banker to call for further action.
The Fed raised rates by 75 basis points on November 2 for the fourth straight time as part of the most aggressive tightening since the 1980s to curb inflation that began after the disruption of the Covid-19 pandemic.
Bullard did not say whether he would favor a 50 or 75 basis point move at the Fed’s December meeting, telling reporters he would look to Powell to set the direction.
Some of his peers called for the size of the next rate hike to be reduced after last week’s consumer prices report, which showed a decline in core consumer goods inflation in October.
Investors expect that the Fed will raise rates by half a percentage point next month and see peak rates around 5% next year.
The president of St. Louis Fed that he expected officials to keep rates high for a long time to avoid the monetary policy mistakes of the 1970s that led to persistently high inflation.
“We definitely don’t want to rerun that episode,” he told reporters. “So we’re going to have to see very tangible evidence that inflation is falling meaningfully towards a target, and I think we’re going to want to err on the side of staying higher for longer to achieve that.”
Bullard said that while he expected inflation to ease next year, there was little evidence so far.
“So far, the change in the monetary policy stance appears to have had only a limited impact on observed inflation, but market pricing suggests that deflation is expected in 2023,” Bullard said in prepared remarks, adding rate hikes so far have led to little finance. stress.
(Comments on the policy view are added beginning in the eighth section.)
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