'Fed Hawk' Bullard Says "Recession Outlook Is Off the Table... Interest Rates Must Rise Further"

James Bullard, former President of the Federal Reserve Bank of St. Louis and a prominent hawkish figure (favoring monetary tightening), has suggested ahead of the economic symposium ‘Jackson Hole Meeting’ that higher interest rates may be necessary as the U.S. economic growth accelerates.

[Image source=Reuters Yonhap News]

In an interview published on the 23rd (local time) by the Wall Street Journal (WSJ), Bullard said, "The Federal Reserve’s June economic outlook heavily factored in a recession scenario, but at least for now, it seems that (the recession forecast) is off the table."

Bullard, who recently left the St. Louis Fed and assumed the position of Dean at Purdue University’s Krannert School of Management, stated that the Fed’s tightening policy, which has lasted for over a year, "has proven to be very successful," and he expects this topic to be a major focus at the Jackson Hole Meeting scheduled for the 24th to 26th. He evaluated, "The headline Consumer Price Index (CPI) was 9% last summer, but it is now slightly above 3%, and this is happening in an environment with a 3.5% unemployment rate, so everything looks very good."

Regarding concerns about a recession, he dismissed them as "exaggerated," saying, "There was a risk of recession, but it was not as high as Wall Street believed." He explained that the Silicon Valley Bank (SVB) collapse earlier this year triggered recession fears, but the SVB incident led to an environment that supported the need for financial easing at the time, which in turn strengthened the U.S. economy in the second half of the year. He diagnosed that now everyone is reassessing based on the stronger economy.

Bullard said, "Faster growth could pose a slight threat," adding, "There were predictions that the U.S. economy would be very weak or even enter a recession, but it does not seem to be materializing now." He pointed out, "Based on this, inflation forecasts need to be revised upward. The labor market remains tight, and the U.S. economy is accelerating. The risk is leaning more toward inflation not falling as quickly as expected."

According to the Fed’s June dot plot, there remains a possibility of one more rate hike by the end of the year. Regarding this, Bullard said, "The Federal Open Market Committee (FOMC) will reassess the economic outlook in September," suggesting that with the recession scenario removed, the interest rate outlook could be revised upward. He predicted, "(The disappearance of the recession scenario) indicates that the committee will continue raising rates for a certain period this fall," and "They will implement the rate hikes expected in June."

He also emphasized, "The bigger question in the market is whether economic growth will accelerate in the second half of this year and whether the FOMC will feel the need to raise rates above 6%," noting that "some inflation figures may rebound or continue a slight upward trend."

On whether the U.S. economy can return to the low-interest, low-inflation environment before the pandemic, Bullard responded skeptically. He said, "Inflation is far above the Fed’s 2% price stability target and will remain relatively sticky above the target," adding, "The policy rate must be higher than the inflation rate for the entire period when inflation is above the target. This will be a higher interest rate regime than since 2008."

Regarding criticisms that much of the recent easing of inflation is due not to Fed policy but to factors such as falling energy prices and supply chain improvements, Bullard pointed out that during the similar high inflation environment of the 1970s, the Fed did not respond quickly enough, and said, "I think the Fed deserves more credit."

Bullard stepped down from his 15-year tenure as Fed President last month and assumed the inaugural deanship of the Mitchell E. Daniels Jr. School of Business at Purdue University on the 15th of this month. He has been a leading hawkish voice publicly calling for rate hikes within the Fed since 2021, before the Fed’s tightening policies fully took effect. Last year, he also demanded aggressive tightening measures, including a giant step (a 0.75 percentage point increase in the benchmark interest rate). As a result, even without voting rights on the FOMC, the market has closely watched every statement he has made.

This content was produced with the assistance of AI translation services.