MNI BRIEF: Fed Must Follow Through On Guidance, Bullard Says

The Federal Reserve has to follow through to ratify the forward guidance previously given to continue to raise interest rates, but the effects on the economy and on inflation are already taking hold, St. Louis Fed President James Bullard said Thursday.

The Fed has raised the policy rate, promised to raise the policy rate further in the future, and begun passive balance sheet reduction, and forward guidance on these dimensions is helping the Fed move policy more quickly to the degree necessary to keep inflation under control, he said. "The fact that market interest rates have moved above their pre-pandemic benchmarks while the policy rate has not can be read as an illustration of the effect of credible forward guidance," he said at a Little Rock Regional Chamber event. Former Fed officials have told MNI the FOMC is likely to raise the fed funds rate by 75bp in July.

Bullard also commented that real-time indicators U.S. gross domestic product growth suggest continued expansion in the quarters ahead, but noted a statistical discrepancy between GDP and GDI. "At this point, it appears that the GDI measure is more consistent with observed labor markets, suggesting the economy continues to grow," he added.