MNI: Fed Rates Policy Can Focus on Lowering Inflation -Bullard

U.S. monetary policy can continue to focus on bringing inflation down as the Fed's macroprudential tools are well positioned to contain the financial turmoil after several bank closures and government interventions, Federal Reserve Bank of St. Louis President James Bullard said Friday.

Economic data have been stronger than expected in the first quarter, and inflation remains too high. The macroprudential response has been "swift and appropriate, and regulators stand ready to take additional action if necessary," he said in remarks prepared for Greater St. Louis Inc.

“Continued appropriate macroprudential policy can contain financial stress, while appropriate monetary policy can continue to put downward pressure on inflation,” Bullard said.

The FOMC raised rates by a quarter point on Wednesday to a 4.75% to 5% target range but signaled it's approaching the peak of the hiking cycle faster than earlier expected amid a likely credit crunch amid bank turmoil. (See: MNI INTERVIEW: Fed Will Cut But Move Slowly: Ex-IMF US Chief)

LOWER RATES

Financial stress tends to reduce the level of interest rates, but lower rates "tend to be a bullish factor for the macroeconomy," Bullard said, citing the 100 bp decline in the two-year Treasury yield and 50 bp decline in the 10-year.

"This may help to mitigate some of the negative macroeconomic fallout that might otherwise occur in the aftermath of a period of financial stress," he said.

Front-loaded Fed policy has helped keep market-based measures of inflation expectations relatively low, and that "bodes well for the disinflationary process in 2023," he said.