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Fed’s James Bullard Says 0.75-Point July Rate Rise Is Likely

James Bullard at a conference in Barcelona last month. The St. Louis Fed chief is a voting member of the rate-setting Federal Open Market Committee this year.
Photo: quique garcia/EPA/Shutterstock

Federal Reserve Bank of St. Louis President James Bullard said he is ready to follow the U.S. central bank’s supersize June rate rise with the same thing at the end of this month.

“Our goal has been to move to neutral expeditiously” when it comes to the central bank’s short-term interest-rate target, Mr. Bullard said Thursday. “I think it would make a lot of sense to go with 75 [basis points] at this juncture” when considering rate increases at the Fed’s July 26-27 policy meeting.

Mr….

Federal Reserve Bank of St. Louis President

James Bullard
said he is ready to follow the U.S. central bank’s supersize June rate rise with the same thing at the end of this month.

“Our goal has been to move to neutral expeditiously” when it comes to the central bank’s short-term interest-rate target, Mr. Bullard said Thursday. “I think it would make a lot of sense to go with 75 [basis points] at this juncture” when considering rate increases at the Fed’s July 26-27 policy meeting.

Mr. Bullard is a voting member of the rate-setting Federal Open Market Committee this year. In mid-June, the FOMC implemented its biggest rate increase since 1994, boosting its overnight target rate range by three quarters of a percentage point. It is expected to make a similarly large move at the end of the month, and press forward with more increases as the year progresses.

Another 75-basis-point rate increase would mean that, in terms of monetary policy, “we’d be at least at the long-run neutral [rate] and we can decide what to do going forward,” Mr. Bullard said. The federal-funds rate target range now stands at 1.5% to 1.75%.

Mr. Bullard reiterated that he wants this target range around 3.5% by year-end, and he said that if the inflation surge that is driving the Fed to act begins to ebb, the central bank may be able to contemplate taking back some of its increases.

In a presentation in Little Rock, Ark., Mr. Bullard said markets have priced in a lot of central bank rate rises, and it is up to the Fed to deliver on investor expectations.

“The fact that market interest rates have moved above their prepandemic benchmarks while the policy rate has not can be read as an illustration of the effect of credible forward guidance,” Mr. Bullard said. He was referring to central bank communications that indicated policy makers expect a string of aggressive rate rises aimed at countering the highest levels of inflation in 40 years.

With much tighter monetary policy priced into markets, “the Fed still has to follow through to ratify the forward guidance previously given, but the effects on the economy and on inflation are already taking hold,” he said.

Mr. Bullard has long been a strong advocate for a forceful response to high inflation and was a leading proponent of raising rates aggressively. He and other central bank officials have said for a while that markets have already priced in a lot of what the Fed needs to do.

Mr. Bullard on Thursday was upbeat about the economic outlook. “U.S. labor markets remain robust, and output is expected to continue to expand through 2022,” he said.

He said he doesn’t see a recession as likely. “The better bet is that the economy will slow to the trend pace of growth and inflation will come under control relatively rapidly because of the sharp actions that the Federal Reserve is taking,” he said. “The base case is for soft landing at this point.”

Related Video

The Federal Reserve’s main tool for managing the economy is to change the federal-funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by companies like how many people to hire. WSJ explains how the Fed manipulates this one rate to guide the entire economy. Illustration: Jacob Reynolds

The Wall Street Journal Interactive Edition

Write to Michael S. Derby at michael.derby@wsj.com

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