(Bloomberg) — A sharp pick-up in economic activity this summer could delay the Fed’s interest rate hike plans, James Bullard, former Federal Reserve Bank of St. Louis president, said.
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“This re-acceleration could put upward pressure on inflation, prevent the deflation we’re seeing, and that could lead to a recovery,” Bullard said Thursday during an interview with Bloomberg Television ahead of the Kansas City Fed’s annual economic policy symposium. Instead the Fed’s policy change plan may be delayed.” Jackson Hole, Wyoming.
Bullard, who resigned last month to become dean of the Mitchell E. Daniels, Jr. School of Business at Purdue University, was an influential voice at the Fed who called for aggressive interest rate hikes to fight the recent inflation surge. .
The former St. Louis Fed chief said that if progress on inflation stalls, or if price pressures strengthen, “that would suggest a higher rate profile for the Fed than would otherwise be the case.”
Policymakers last month raised interest rates by a quarter point, bringing their benchmark rate target to a range of 5.25% to 5.5%. Officials have more economic data to review ahead of their next policy meeting on Sept. 19-20, including a monthly jobs report and the latest readings on inflation.
Economic projections released by policymakers in June showed the average official expected to raise rates at least once this year. But investors broadly expect the Fed to hold rates steady through the end of the year, according to pricing in futures contracts.
Bullard reiterated comments he made earlier this week that fears of a recession are overstated and that stronger economic growth may require higher rates to combat inflation. He said on Thursday that it is possible that interest rates will have to be kept high in the medium term to deal with price pressure.
“I think the chances are that we are in a new regime which will be a higher interest rate regime,” Bullard said on bTV. “Inflation is above target today. Core inflation is likely to remain stable and ease gradually.
(Updated with additional Bullard comments in seventh paragraph)
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