Fed Bullard: "This Year, 1.5%P Additional Rate Hike... Prolonged High Level Needed"

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] James Bullard, President of the Federal Reserve Bank of St. Louis and a prominent hawk (favoring monetary tightening) at the U.S. central bank, the Federal Reserve (Fed), stated that an additional 1.5 percentage point interest rate hike is necessary by the end of the year. He dismissed growing concerns about an economic recession.

On the 3rd (local time), Bullard appeared on the economic media CNBC's Squawk Box and said, "Inflation is actually easing across all sectors, and we need to maintain the (benchmark interest rate) at a higher level for longer to obtain clear evidence that it is definitely coming down." He forecasted that "this year we need to reach 3.75 to 4%" and that an additional 1.5 percentage point increase is necessary by year-end.

This level far exceeds market expectations. Currently, the U.S. benchmark interest rate stands at 2.25 to 2.5%. Financial markets anticipate that the Fed will raise rates by 0.5 percentage points in September and then increase by 0.25 percentage points each in the remaining two Federal Open Market Committee (FOMC) regular meetings, reaching 3.25 to 3.5% by the end of the year.

Bullard indicated that the monetary tightening stance will continue, saying, "We will not feel that we have accomplished our job (price stability) until we see comprehensive indicators that inflation has definitely come down." He also reiterated the Fed's fundamental position of carefully monitoring data.

This aligns with remarks made by senior Fed officials released the previous day. Loretta Mester, President of the Federal Reserve Bank of Cleveland, and Mary Daly, President of the San Francisco Fed, both indicated that the fight against inflation is not over, saying "there is a long way to go" and "more work remains," suggesting further rate hikes. Charles Evans, President of the Chicago Fed, also expects a 0.5 percentage point hike in September but left room for a 0.75 percentage point "giant step." Among them, Mester and Bullard have voting rights at this year's FOMC regular meetings.

Additionally, Bullard drew a line regarding the debate over recession following the U.S. experiencing two consecutive quarters of negative growth, meeting the technical recession criteria. He said, "We are not currently in a recession," adding, "All jobs increased in the first half of the year, and the unemployment rate is only 3.6%, so it is difficult to say we are in a recession." He further added, "Although job growth will slow in the second half, it will show quite strong growth as a long-term trend."

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