- Federal Reserve official James Bullard isn't ruling out a jumbo interest-rate hike of 75 basis points this year.
- He wants the Fed to raise rates to 3.5% by year's end to try to tame inflation running at 40-year highs.
- "What we need to do right now is get expeditiously to neutral, and then go from there," the St. Louis Fed chief said Monday.
Federal Reserve official James Bullard said he wouldn't rule out a 75-basis-point interest-rate hike from the US central bank this year, because inflation is "far too high."
But he doesn't expect such an increase to take place right away.
"More than 50 basis points is not my base case at this point," Bullard said Monday at a virtual event hosted by the Council on Foreign Relations.
The St. Louis Fed President noted the Fed under Alan Greenspan made a 75 basis point hike in 1994 to respond to a moderate uptick in inflation, and its move led to an economic boom.
"First of all, that one was successful, and did set up the US economy for a stellar second half of the 1990s — one of the best periods in US macroeconomic history," Bullard said.
"And in that cycle, there was a 75 basis point increase at one point, so I wouldn't rule it out," he added.
The Fed raised the federal funds rate by 0.25 basis points in March in an attempt to tame inflation that's holding strong at 40-year-highs. The central bank's "dot plot" forecast shows policymakers on average expect interest rates to rise to 1.9% by the end of the year.
Minutes from the Fed's March meeting show that "many" Federal Open Markets Committee members would have preferred a larger, half-percentage-point increase last month. But uncertainties around the economic effects of the Russia-Ukraine war convinced them to take less aggressive action.
Bullard said he prefers the central bank to move fast to raise rates to 3.5% by the end of this year, with multiple half-percentage-point rate hikes at the Fed's six remaining meetings in 2022. Fed Chair Jerome Powell and other officials have pointed to a half-percentage-point increase at the bank's two-day meeting scheduled to start May 3.
The Fed's first goal should be to get a neutral rate soon, which is estimated to be 2.4%, according to Bullard.
"What we need to do right now is get expeditiously to neutral, and then go from there," he said. "I've even said we want to get above neutral as early as the third quarter, and try to put further downward pressure on inflation at that point."
Bullard, who is a voting member of the rate-setting FOMC, said talk of recession is premature at this point, and he wants to begin reducing the Fed's balance sheet at an upcoming meeting. He said he doesn't think there's a need to start selling bonds, unless inflation doesn't cool like the Fed expects.
He also said the markets have already priced in Fed tightening.
"The hawkish shift of the Fed since last November has caused volatility in markets, and there has been repricing, and I am very sympathetic to financial markets," he said. "At this point, quite a bit has been priced in."