Jim Bullard cautions on inflation risk despite rate hikes

Jim Bullard, the former President of the Federal Reserve Bank of St. Louis, voiced concerns about the potential resurgence of inflation during a conversation at the UBS European Conference in London. Despite stepping down from his position in August, Bullard remains attentive to economic indicators and the Federal Reserve’s efforts to combat inflation.

Bullard highlighted that the Federal Open Market Committee (FOMC) had implemented 11 rate hikes between March 2022 and July 2023, adjusting the Fed funds rate from a range of 0.25-0.5% to 5.25-5.5%. This aggressive monetary policy contributed to a significant reduction in inflation over the past year, a period Bullard referred to as “nice disinflation.”

However, he warned that the battle against rising prices is not yet won. In his interview with CNBC’s Joumanna Bercetche, he pointed out that core Personal Consumption Expenditures (PCE) inflation has only decreased from 5.5% to 3.7%. This figure is still a substantial distance from the Federal Reserve’s target inflation rate of 2%.

While financial markets are anticipating interest rate cuts in the coming year, Bullard cautioned that there might be unexpected price hikes leading to an inflation turnaround risk. He stressed that if disinflation does not continue, more action from the FOMC could be necessary.

A poll of economists has forecasted a modest increase in October’s consumer price index (CPI) by 0.1% monthly and an annual rise of 3.3%. Although this represents just a single month’s data, it is an important indicator that could signal persistent inflationary pressures.

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