St. Louis Federal Reserve President Jim Bullard is defending his dissenting opinion that the central bank did not go far enough in raising rates by stressing the need to achieve a “policy rate above 3% this year.”
What Happened: In Wednesday's meeting of the central bank’s policymaking Federal Open Market Committee (FOMC), there was a unanimous agreement that federal funds rates needed to be raised for the first time since 2018, but Bullard was the sole committee member who did not support raising raise the target range for the rate from 0.25% to 0.50%.
“In my view, raising the target range to 0.50% to 0.75% and implementing a plan for reducing the size of the Fed’s balance sheet would have been more appropriate actions,” Bullard said in a statement published this morning on the St. Louis Fed’s website.
While observing the “U.S. economy is currently projected to continue to grow at a pace comfortably above its long-run potential growth rate during 2022 and 2023,” Bullard stated the dramatic increase in inflation and its impact on lower-income Americans is creating a situation that demands a more aggressive response.
“The combination of strong real economic performance and unexpectedly high inflation means that the committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation,” Bullard continued. “Moreover, U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower. The committee will have to move quickly to address this situation or risk losing credibility on its inflation target.”
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What Happens Next: Bullard recommended that the Fed work to “achieve a level of the policy rate above 3% this year,” which he insisted was a proper response to the current economic environment.
“This would quickly adjust the policy rate to a more appropriate level for the current circumstances,” he stated. “The committee has successfully moved in this manner before. In 1994 and 1995, the committee made a similar discrete adjustment to the policy rate to better align it with the macroeconomic circumstances at that time. The results were excellent.”
Photo: Jim Bullard, courtesy of the Federal Reserve Bank of St. Louis
