“Now we have lots of inflation, but the question is, can we get [inflation] back to 2% without disrupting the economy? I think we can,” he said.
Bullard’s optimism coincides with a rapid pace of interest rate increases by the Fed, intended to combat the highest U.S. inflation in 40 years.
Higher rates limit the ability of consumers and businesses to borrow and spend, which can cool growth and inflation. But they also carry the risk of tipping the economy into a downturn.
Consumer prices rose 8.6% in May compared with a year ago, and a government inflation report Wednesday could show that they’ve ticked higher.
Bullard also said he currently supports a 0.75 percentage point increase in the Fed’s benchmark short-term interest rate at its next meeting later this month. Its rate is currently in a range of 1.5% to 1.75%, after a 0.75 percentage point hike at its June meeting, the largest since 1994.
Separately, Esther George, president of the Federal Reserve Bank of Kansas City, sounded a more cautionary note in a speech Monday, in which she suggested the Fed’s large rate hikes could prove disruptive.
“I’m certainly sympathetic to the view that interest rates need to increase rapidly, recognizing that current rates are out of sync with today’s economic landscape,” she said, addressing a labour conference in Lake Ozark, Missouri. “However … policy changes transmit to the economy with a lag, and significant and abrupt changes can be unsettling to households and small businesses as they make necessary adjustments.”
George was the only Fed policymaker to dissent from the Fed’s June rate hike, out of concern that it was too large.
George noted after just four months of Fed rate hikes, “there is growing discussion of recession risk, and some forecasts are predicting interest rate cuts as soon as next year.” Those concerns suggest the Fed is lifting interest rates “more quickly than the economy and markets can adjust,” she added.
The Fed typically moves rates in quarter-point increments, but Chair Jerome Powell has said the Fed wants to move “expeditiously” to a level of about 2.5%, which would neither stimulate nor restrain growth.
On Friday, the government’s jobs report showed employers added 372,000 jobs, a healthy increase, while the unemployment rate remained at 3.6% for the fourth consecutive month, slightly above the five-decade low reached just before the pandemic.
The robust figures contrast with signs of a softening economy, from falling home sales to declining factory production to slower consumer spending. The economy contracted in the January-March quarter and real-time data trackers, such as one maintained by the Atlanta Federal Reserve Bank, suggest it did so again in the April-June quarter.
Two quarters of shrinking output would meet one rule of thumb for a recession. But the official definition of a recession, set by the National Bureau of Economic Research, looks at a much broader range of data to determine whether a downturn has occurred.
Bullard said that other measures of the economy, such as a broad measure of workers’ and businesses’ incomes, suggest the economy may have expanded in the first six months of this year. Businesses and other employers also added 2.7 million jobs during that time, a robust total that reflects an optimistic outlook among businesses.
“It just doesn’t seem like the U.S. economy has been in recession for the last two quarters,” Bullard said.
Bullard also disagreed that the economy needed several years of high unemployment to get inflation back under control, a view articulated several weeks ago by former Treasury Secretary Larry Summers.
Unlike the early 1980s, when sharp Fed interest rate increases pushed unemployment above 10%, the Fed has more credibility now as an inflation fighter, Bullard said. As a result, an inflationary psychology hasn’t taken hold of most consumers, as it did then, and the central bank won’t have to increase rates as much.
Other Fed officials have said that they support a three-quarters of a point increase in the Fed’s rate in July, including Federal Reserve Bank of Atlanta President Raphael Bostic.
“I’m fully supportive of moving 75 basis points,” Bostic said on financial network CNBC Friday, using financial terminology for a three-quarter point hike. “The tremendous momentum in the economy to me suggests” that the Fed could implement such an increase “and not see a lot of protracted damage to the broader economy.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
