St. Louis Fed President: The Federal Reserve's goals are close to being achieved, and policy should remain "moderately restrictive."
St. Louis Federal Reserve President James Bullard stated that the Federal Reserve's inflation and employment targets are close to being achieved, but with the inflation rate still above 2%, policy should remain "moderately restrictive." He pointed out that monetary policy should gradually adjust interest rates to support inflation returning to target levels and emphasized the need to carefully assess economic data to determine whether to further cut interest rates. Although recent rate cuts have eased policy restrictions, inflation risks still exist. The latest data shows that core inflation continues to rise, and investors expect the Federal Reserve to cut rates again in December
According to the Zhitong Finance APP, St. Louis Federal Reserve President James Bullard stated that the Federal Reserve's inflation and employment targets are close to being achieved, but he emphasized that policy should remain "moderately restrictive" while the inflation rate is still above the Federal Reserve's 2% target.
In a speech prepared for the Memphis Economic Club on Wednesday, Bullard said, "Monetary policy is currently in a favorable position, and by gradually adjusting the policy interest rate towards a neutral level, it is expected to restore the inflation rate to the target level and support maximum employment, provided that inflation continues to decline towards 2%." The neutral interest rate refers to a policy interest rate that neither stimulates nor suppresses economic growth.
He added that the Federal Reserve can "prudently and patiently" assess the upcoming economic data to make decisions regarding further interest rate cuts.
Federal Reserve officials last week again lowered interest rates by a quarter of a percentage point, marking the second consecutive rate cut. Bullard stated that the recent rate cuts "have reduced but not completely eliminated the restrictiveness of policy."
He further noted, "Based on current information, in my baseline scenario, I expect inflation to converge towards 2% in the medium term, the labor market to further cool, but still remain within the range of full employment, and wage growth to moderate." Bullard believes this baseline scenario reflects that "with inflation above 2%, monetary policy should remain moderately restrictive."
However, Bullard also indicated that recent data shows an increased risk that the inflation rate may stop declining or even rise. On the other hand, the risk of deterioration in the labor market remains unchanged and may even decrease.
Data released earlier on Wednesday showed that U.S. core inflation remained strong in October. The core Consumer Price Index (CPI), excluding food and energy costs, rose 0.3% for the third consecutive month. The overall CPI (including food and energy) increased by 2.6% year-on-year, marking the first annualized acceleration in growth since March. Bullard stated that this data indicates that core inflation "remains elevated."
Following the release of this data, in line with economists' predictions, investors increased their expectations that the Federal Reserve will cut rates again by a quarter of a percentage point at its next meeting in December.
Bullard also mentioned that the current labor market is close to full employment, with low unemployment and layoff rates. He described it as a cooling labor market, but with no obvious signs of deterioration