The Federal Reserve needs to move aggressively and get U.S. interest rates high enough to where they are “mildly” restricting economic activity to keep inflation under control, said St. Louis Fed President James Bullard on Tuesday.
“I think faster is better,” Bullard said, in an interview on Bloomberg Television. “
The St. Louis Fed president has advocated getting the Fed’s policy rate up to 3% this year.
Bullard dissented last week when the Fed decided to raise interest rates rates by 25 basis points to a range of 0.25% to 0.5%. He wanted a 50 basis point move.
Right now, the Fed is putting upward pressure on inflation, Bullard said. “It’s the wrong place to be,” he said.
Bullard said that 50 basis point moves should definitely be “in the mix” as the Fed moves rates higher.
A 2% fed funds rate is the level of a “neutral” policy rate, one that does not stimulate the economy or dampen demand, the Fed believes.
So taking the funds rate to 3% this year would be “mildly restrictive” and “would help turn inflation around”, he said.
On Monday, Fed Chairman Jerome Powell also sounded hawkish, opening the door to multiple rate hikes higher than 25 basis points. The Fed chairman also said that policy may need to move into restrictive territory.
The St. Louis Fed president, who is a voting member of the Fed’s interest-rate committee this year, said the Fed can still achieve a “soft landing” for the economy even given projected rate hikes.