St. Louis Fed President James Bullard speaks about the U.S. economy during an interview in New York February 26, 2015. REUTERS/Lucas Jackson
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Aug 2 (Reuters) – The US Federal Reserve and European Central Bank may both be able to pull off a “relatively soft landing” that avoids a harsh recession for their respective economies as they hike interest rates to curb inflation , St. Louis Federal Reserve President James Bulllard said Tuesday.
That’s because both central banks, despite grappling with the highest rates of inflation in decades, began their current efforts with considerably more credibility than their counterparts in the 1970s and 1980s, Bullard said in a speech delivered to a gathering of money market traders was prepared in New York University. Their predecessors from about half a century ago lacked that credibility before launching their own anti-inflation efforts.
In the case of the Fed, this led to severe, back-to-back recessions in the early 1980s, when Fed Chairman Paul Volcker had to raise interest rates to punitive levels to gain credibility and bring down inflation.
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“With modern central banks having more credibility than their 1970s counterparts, it appears that both the Fed and the ECB may be able to disinflate in an orderly manner and achieve a relatively soft landing,” Bullard said in slides that have been prepared for the presentation.
Bullard’s largely academic remarks on Tuesday followed those of a trio of his colleagues who earlier in the day delivered a uniformly hawkish message that rattled bond and interest rate futures markets, which emerged from last week’s Fed meeting that was positioned for the Federal Reserve slow the pace of interest rate hikes. Continue reading
Mary Daly, Charles Evans and Loretta Mester, the presidents of the regional Fed banks in San Francisco, Chicago and Cleveland, said in separate appearances that they were “completely united” in bringing US interest rates to levels that the economy is more aware of activity and left a dent in the highest rate of inflation since the 1980s. Continue reading
Last month, the Fed raised its reference rate by 75 basis points for a second straight meeting, and Chair Jerome Powell said another “unusually large” hike may be appropriate at the Fed’s September policy meeting if data warrants it by then. The Fed interest rate is now in a range of 2.25-2.50%. Continue reading
Ahead of the July meeting, Bullard — one of the Fed’s most hawkish policymakers — had said he wanted to see the Fed’s policy rate in the 3.75% to 4.00% range by year-end, down from its previous target of 3.50% .
In June, Fed officials’ average expectation for year-end rates was 3.40%, a number that will also be updated at the September 20-21 meeting.
Last month, the ECB raised its deposit rate for the first time since 2011 and announced further rate hikes. Continue reading
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Reporting by Dan Burns; Adaptation by Leslie Adler
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