After Wednesday's strong March consumer price index report, traders began changing their expectations for when the Federal Reserve would start cutting interest rates.
One of the people conducting an internal investigation into how the Fed views these reports is James Bullard, former St. Louis Fed president and current dean of the Purdue Daniels School of Business. .
Bullard believes the FOMC was prepared to cut rates in the first quarter, but held back after hot inflation reports.
Regarding the possibility of further rate hikes before a rate cut, Bullard said that rather than raise rates, the committee's hawks would “stay where they are because policy rates are fairly high and seen as restrictive.” I think it's possible.
The biggest battle for the Fed is to bring inflation down to its 2% target. Central banks have kept interest rates at restrictive levels, but inflation has turned out to be more robust than many thought. So how can central banks reduce inflation without sacrificing employment? As Bullard explains, this is an “art form” of trying to strike a balance, but “if the value of the policy rate is “I think that means that price movements in the economy will eventually return to the 2% target because inflation expectations were relatively high and lower than they were, say, a year and a half ago.” “We are still on track for a soft landing, but it will take a little longer than previously thought,” he added.
Overall, Bullard believes that “inflation is still not quite on target, but if the economy is doing reasonably well, the Fed will still bring inflation down to 2%.”
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This post was written by Stephanie Mikulich.
