Louis Federal Reserve Chairman James Bullard said Wednesday that the central bank will continue to raise interest rates until it sees convincing evidence of lower inflation.
The central bank official said he expects another 1.5 percentage point or so increase in interest rates this year as the Fed continues to battle the highest levels of inflation since the early 1980s.
“I think we’ll probably have to be higher for a little while longer in order to get the evidence that we need to see that inflation is really shifting on all dimensions and coming down in a convincing way, not just a sign of downside here and there,” Pollard said during a live interview with Squawk Box on CNBC.
This message of continued rate hikes resonates with other Fed speakers this week, including regional presidents Loretta Meester of Cleveland, Charles Evans of Chicago and Mary Daly of San Francisco. Both said on Tuesday that the fight against inflation is not over yet, and further monetary tightening will be needed.
Both Pollard and Mister are voting members this year of the Federal Open Market Committee that sets the interest rate. Last week, the group agreed to a second consecutive 0.75 percentage point increase in the Federal Reserve’s record borrowing rate.
If Bullard goes his way, the price will continue to climb to the 3.75%-4% range by the end of the year. After the start of 2022 close to zero, the rate is now in the 2.25%-2.5% range.
Consumer price inflation is running at 9.1% in 12 months, the highest level since November 1981. Even throwing off the highs and lows of inflation, as the Dallas Fed did with its “cut-off average” estimate, inflation is running at 4.3%.
“We have to see compelling evidence across the board, headlines and other measures of core inflation, all of which come down convincingly before we feel like we’re doing our job,” Pollard said.
The rate hike comes at a time when growth is slowing in the US, which has seen a consecutive quarter of negative GDP readings, a common definition of recession. However, Pollard said he doesn’t think the economy is really in a recession.
“We’re not in a recession right now,” he said. “We have these two quarters of negative GDP growth. To some extent, stagnation is in the eyes of the beholder.” “With all the job growth in the first half of the year, it’s hard to say there’s a recession. With the unemployment rate steady at 3.6%, it’s hard to say there’s a recession.”
He added that the second half of the year will see reasonably strong growth, although job gains are likely to slow on their long-term trend. Nonfarm payroll growth for July is expected to be 258,000, according to Dow Jones estimates.
Even with the slowing trend, markets are pricing in another half-percentage point rate hike from the Federal Reserve in September, though chances of a third straight move of 0.75 percentage point are rising. The market then anticipates future increases in November and December, as the Fed funds rate rises to a range of 3.25%-3.5% by the end of the year, below Bullard’s target.
“We’re going to follow the data very carefully, and I think we’re going to get it right,” Pollard said.