(Reuters) -The Federal Reserve must act boldly in raising U.S. interest rates in order to contain inflation before higher expectations become entrenched, St. Louis Fed President James Bullard said on Friday.
“We have to act forthrightly and aggressively to get inflation to turn around and get it under control … or you could suffer a decade of high and variable inflation,” Bullard said during a panel discussion on central banks and inflation hosted by UBS in Zurich, Switzerland.
“So front-load today, get inflation under control in short order and get inflation back on a path to 2%,” Bullard added.
Last week, the Fed raised its benchmark overnight interest rate by three-quarters of a percentage point – its biggest hike since 1994 – to a range of 1.50% to 1.75%, and signaled its policy rate would rise to 3.4% by the end of this year.
Bullard has previously said he wants to see the Fed’s policy rate increase to 3.5% by the end of 2022, a point he repeated on Friday. Once borrowing costs rise high enough to put downward pressure on inflation and disinflationary forces take hold, the central bank could possibly begin to cut rates, he said.
The St. Louis Fed chief also downplayed the risk of recession, saying that rate increases will probably slow the economy to a trend pace of growth, rather than below trend.
“This is the early stages of a U.S. expansion … unless we get hit by a bit shock or something, it would be unusual to go back into recession at this stage,” Bullard said.
On Thursday, Fed Chair Jerome Powell told lawmakers the central bank’s commitment to reining in inflation, which is running at a 40-year high, is “unconditional.”