st. Louis Fed Chairman James Bullard said on Thursday that as the labor market remains strong despite the recent increase in financial stress, the Fed must maintain its current interest rate line and work to curb inflation.
Bullard: "85 Percent Probability that Financial Stress Will Continue to Decrease"
Speaking at a meeting of the Arkansas Bankers Association in Little Rock, Bullard said he sees the 85% probability that financial stress will continue to subside as regulators take swift and appropriate macroprudential steps to contain the banking crisis.
He added that he is not convinced that loans will decrease significantly or that credit conditions will tighten enough to cause the economy to fall into recession. He said banks have reported that loan demand remains strong and that the reverse repo facility is functioning as expected.
Bullard also said it has yet to review revisions to Thursday's jobless claims data, which showed March jobless claims were higher than previously thought. He said the JOLTS data is still at a high level, so the latest report doesn't give much signal.
Bullard stressed that the Fed cannot immediately declare victory on inflation because inflation appears to be stabilizing but remains very high.
He said he wanted to see a clear downward trend in core inflation and remains optimistic that inflation could be lowered this year.
He noted that FOMC policy has kept market-based inflation expectations relatively low, which bodes well for lower inflation this year.
Bullard concluded his speech by saying:
“For now, the financial stress seems to have decreased. I am quite optimistic that the FED's coercive steps on banks will be effective. I remain optimistic that inflation could be lowered this year as the labor market remains relatively strong. We must continue to move forward in our interest policy.”
*Not investment advice.