By Natalie Mojica
St. Louis Federal Reserve President James Bullard called for the Federal Reserve to raise its short-term borrowing rate an entire percentage point by July during a talk at Columbia University on Feb. 15. Bullard cautioned that unless action is taken on interest rates, inflation could get worse.
“We’re at more risk now than we’ve been in a generation that this could get out of control,” he said, “One scenario would be…a new surprise that hits us that we can’t anticipate right now, but we would have even more inflation. That’s the kind of situation that we want to…make sure it doesn’t occur.”
Bullard emphasized that the Fed must be prepared to front-load interest rate hikes to get ahead of inflation rising past the record highs currently seen. This position contrasts with other Fed officials who are hesitant to take definitive action, opting to consider pandemic-related reasons like supply chain issues as the leading cause behind inflation.
There are also those like San Francisco’s Mary Daly, a Fed president that thinks aggressive policy can be too sudden for the stability for which the Fed strives. Daly advised a more ‘measured approach’ in increasing interest rates.
“What I would favor is moving in March and then watching, measuring, being very careful about what we see ahead of us — and then taking the next interest rate increase when it seems the best place to do that,” Daly said.
Bullard doesn’t share the thoughts of his colleagues.
“Overall, I’d say there’s been too much emphasis and too much mindshare devoted to the idea that inflation will dissipate at some point in the future,” said Bullard. “We’re at risk that inflation won’t dissipate, and 2022 will be the second year in a row of quite high inflation. So that’s why given this situation, the Fed should move faster and more aggressively than we would have in other circumstances.”
Bullard insisted that it’s in the economy’s best interest and the public to push interest rates up quickly. The high welfare costs of inflation cannot be underestimated from Bullard’s perspective. As he points out, economic performance suffers, and consumers become disgruntled.
