Fed Bullard: Strong US Economy Can Handle Rising Rates | National policy


WASHINGTON (AP) — Last week’s jobs report pointed to a strong U.S. economy with few signs of a recession on the horizon that can withstand higher interest rates, the Reserve Chairman said Monday. Federal of St. Louis, James Bullard.

Financial markets are showing flashing signs that an economic slowdown could come next year as Americans grapple with the highest inflation in four decades and the Federal Reserve raises borrowing costs. But Bullard said in an interview with The Associated Press that the central bank would not have to plunge the economy into a recession or dramatically increase unemployment to bring inflation back to its 2% target.

“We now have a lot of inflation, but the question is can we bring (inflation) down to 2% without disrupting the economy? I think we can,” he said.

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Bullard’s optimism coincides with a rapid pace of interest rate hikes by the Fed, intended to tackle the highest US inflation in 40 years.

Higher rates limit the ability of consumers and businesses to borrow and spend, which can dampen growth and inflation. But they also carry the risk of tipping the economy into a slowdown.

Consumer prices rose 8.6% in May from a year ago, and a government inflation report on Wednesday could show they rose.

Bullard also said he currently supports a 0.75 percentage point hike in the Fed’s benchmark short-term interest rate at its next meeting later this month. Its rate is currently in a range of 1.5% to 1.75%, after rising 0.75 percentage points at its June meeting, the largest since 1994.

The Fed typically moves rates in quarter-point increments, but Chairman Jerome Powell said the Fed wants to move “quickly” to a level of around 2.5%, which won’t boost or dampen growth. .

The government’s jobs report on Friday showed employers added 372,000 jobs, a healthy increase, while the unemployment rate remained at 3.6% for the fourth month in a row, slightly above the trough. of five decades reached just before the pandemic.

The robust numbers contrast with signs of a slowing economy, from falling home sales to falling industrial production to slowing consumer spending. The economy contracted in the January-March quarter and real-time data trackers, like the one maintained by the Federal Reserve Bank of Atlanta, suggest it did so again in the April quarter. -June.

Two quarters of falling output would be a rule of thumb for a recession. But the official definition of a recession, compiled by the National Bureau of Economic Research, looks at a much wider range of data to determine whether a downturn has occurred.

Bullard said other measures of the economy, such as a large measure of worker and business incomes, suggest the economy likely grew in the first six months of this year. Businesses and other employers also added 2.7 million jobs during this period, a solid total that reflects the optimistic outlook for businesses.

“It just doesn’t look like the US economy has been in a recession for the past two quarters,” Bullard said.

Other Fed officials have said they support a three-quarter point increase in the Fed rate in July, including Atlanta Federal Reserve Chairman Raphael Bostic.

“I fully support the 75 basis point move,” Bostic told the CNBC Financial Network on Friday, using financial terminology for a three-quarter point hike. “The tremendous momentum in the economy suggests to me ‘the Fed could implement such an increase’ and not see much prolonged damage to the broader economy.”

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