Fed president sees inflation fight stretching into 2024

The Federal Reserve head in St. Louis expects the central bank’s fight to curb high inflation in the U.S. economy to stretch into 2024.

St. Louis Federal Reserve President James Bullard told MarketWatch’s economics editor Greg Robb the Fed could slowly raise interest rates to a range of 5 percent to 7 percent.

“I think we’ll probably have to stay there all during 2023 and into 2024,” Bullard said of that range.

The Fed has raised interest rates six times this year as the U.S. struggles with a roughly 40-year high inflation rate.

In early November, the bank hiked interest rates to a range of 3.75 to 4 percent, the fourth consecutive increase of 75 basis points.

Meeting minutes from the Federal Open Market Committee (FOMC) suggested that its next meeting in December, board members were open to raising interest rates by 50 basis points instead of another 75 basis point hike.

While hiking interest rates raises borrowing costs to help curb demand in an overheated economy, it can also eat into other sectors of the economy that are now healthy, including low unemployment rates and consumer spending levels.

But Bullard told MarketWatch that it was beneficial for the Fed to fight inflation while unemployment is low.

“The fact that the labor market is so strong gives us license to pursue our disinflationary strategy now and try to get the inflation under control now,” he said. “So we don’t replay the 1970s, where the FOMC at that time took 15 years to get inflation under control.”

Some leading economists expect the U.S. to enter a recession next year, largely because of the Fed’s aggressive interest rate hikes.

Bullard said a recession is not inevitable, but it is possible the economy hits a “shock” that tips the U.S. into one. The St. Louis Federal Reserve president predicted slow growth in the economy rather than a serious contraction.

The annual inflation rate fell from 8.2 percent in September to 7.7 percent in October, but that’s still much higher than the 2 percent goal for the Fed.

New York Federal Reserve President John Williams said during an appearance at the Economic Club of New York on Monday that “inflation is far too high.”

“Persistently high inflation undermines the ability of our economy to perform at its full potential,” Williams said, according to comments shared on Twitter.

Williams said “we’ve seen significant improvement in global supply chains” but that it would “not be enough to get inflation” down to the central bank’s 2 percent goal.

“My baseline view is that we are going to need to raise rates from where they are today,” he added.