Fed’s Bullard says he joined Mester in pushing for a 50 basis-point rate hike at last policy meeting

That would be an additional 75 basis points from where the Fed’s benchmark rate is now.

Bullard and Mester are not voting members of the Fed’s interest-rate committee this year, having rotated off after voting last year.

At the Fed’s meeting, the 12 voters unanimously voted to slowed the pace of their rate hikes from 50 basis points to a smaller 25 basis point move, bringing the fed funds rate up to 4.5%-4.75%.

In his speech, Bullard said further rate hikes were needed to keep inflation coming down this year.

“Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets,” Bullard said.

The St. Louis Fed president said that the U.S. economy faces a “long battle” against inflation.

He said the January consumer and wholesale price data, released earlier this week, might have been more of a disappointment to markets that were optimistic that inflation was going to quickly dissipate than for Fed officials who thought the process would be “bumpy.”

The data “were more consistent with my story and maybe elsewhere on the FOMC, where people have said this is going to be a longer process than what markets think,” he said.

Markets pricing suggested that inflation would come “crashing down” to the Fed’s 2% target and that is just “overly optimistic,” he said.

Some economists want the Fed to pause from its steady pace of rate hikes. They argue that the Fed has pushed rates up sharply by 4.25% over the past 12 months and that the impact from this sharp move has yet to be felt on the economy.

Bullard said he is not as worried as some that economic growth is facing future downward pressure.

“I have pushed back against the long and variable lags argument… because I think in the modern era the transmission of monetary policy is much faster than it would have been in the 50s, 60s and 70s,” he said.

“Front-loaded Fed policy has helped keep market-based measures of inflation expectations relatively low,” he said.

In his talk, Bullard was upbeat about the U.S. economy, suggesting additional rate hikes won’t disrupt economic growth.

“Perhaps the best interpretation is that real GDP growth is slowing to be in the neighborhood of the potential growth rate of about 2% on a year-on-year basis after stellar growth in 2021,” he said.

He said he was skeptical the labor market is going to weaken.

It just seems like a very strong labor market on many dimensions and it seems like there are structural issues with labor supply that are going to keep it strong,” he said.

U.S. stocks dropped back toward session lows after Bullard spoke as markets reacted to a sense the Fed was not close to ending rate hikes. The yield on the 10-year Treasury note rose to 3.83%.