The Fed’s Bullard says that rate hikes have had “only limited effects” on inflation so far

Louis Federal Reserve Chairman James Bullard said Thursday that the central bank still has a lot of work to do before it gets inflation under control.

A voting member of the rate-setting Federal Open Market Committee, Bullard delivered remarks centered on a rules-based approach to policy making. Using criteria set by Stanford University economics professor John Taylor, Bullard insisted that the Fed’s moves so far are insufficient.

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He said, “So far, the change in monetary policy stance seems to have had only limited effects on observed inflation, but market prices indicate that inflation is expected to decline in 2023.”

Even using what he described as “generous” assumptions regarding the Fed’s progress so far in its battle against inflation, it noted in a series of slides that “the policy rate is not yet in an area that would be considered restrictive enough.”

“To get to a sufficiently restrictive level, the interest rate needs to increase further,” he added in the presentation.

Recent data indicated that the pace of inflation may slow. The consumer price index for October rose 0.4%, less than market expectations, and the annual pace eased to 7.7%, from a 41-year high reached in the summer but still well above the Fed’s 2% target. Another measure favored by Fed officials is that the core inflation rate, excluding food and energy, is 5.1% annually, but that is still far from the target.

There is little, if any, opposition to the Fed on whether interest rates need to continue to rise. Most of the members proposed some additional increases over the next several months which would bring the central bank’s overnight borrowing rate to around 5% from the current target range of 3.75%-4%.

However, Bullard’s offer argued that 5% could serve as the low range for where the money rate should be, and that the upper limit could be closer to 7%. This is completely out of sync with current market rates, which also see the fed funds rate topping out around 5% by mid-2023.

Taylor’s rule, as it is known, establishes a link between what the money rate needs to be compared to inflation and economic growth. Inflation has eased recently, but the annual rate is still near its highest rate in more than 40 years.

Bullard’s comments follow those of several other Fed officials who have expressed the need to keep the heat on inflation, though several said policymakers could backtrack a little on the level of the recent increases. The Fed has approved four consecutive 0.75 percentage point rate increases, and markets widely expect the December FOMC meeting to result in a 0.5 percentage point move.

Despite her support for continued interest rate increases, Kansas City Fed President Esther George told the Wall Street Journal, in a report dated Wednesday, that she worries about the impact of policy tightening on the economy.

“Never in my 40 years with the Fed have I seen a time of this kind of tightening that didn’t have some painful results,” George told the newspaper, listing “deflation” as part of the possible outcomes.

George is also a voter on the Federal Open Market Committee.

In other recent remarks, Fed Governor Christopher Waller said Wednesday that he was open to the idea of ​​”stepping back” on the level of rate hikes but added that he would need to see more evidence before he could be convinced by recent data indicating that inflation has plateaued.

Also, San Francisco Federal Reserve Bank President Mary Daly told CNBC on Wednesday that she expects more rate increases and that “a pause is off the table” even with a lower level of rate increases.

And there are a slew of other Fed speakers lined up for Thursday, including several regional chairs and Gov. Michael Bowman.

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