Central bankers need to be careful not to increase interest rates too quickly this year because that could have a restrictive effect on the economy, St. Louis Federal Reserve President James Bullard told CNBC on Thursday.
Wall Street expects the Fed to raise rates at next month’s meeting, in the first of what’s seen as at least three total hikes in 2018. The Fed increased the cost of borrowing money three times last year to the current range of 1.25 to 1.50 percent.
Hiking rates by a total of 1 percent this year, which would signal four increases of the typical 0.25 percent, would be priced for perfection, Bullard said.
He said the Fed needs to follow the economy, which is showing strength but still little inflation. He doesn’t expect the years of below-target inflation to change rapidly.
Bullard’s appeared on “Squawk Box” one day after the release of the minutes from the Fed’s January policy meeting. Central bankers held interest rates steady last month, but indicated optimism about the economy and inflation moving higher toward the Fed’s 2 percent target.
The Fed should only move from a reactive to a proactive stance only if inflation moves to target with expectations of further price pressures on the horizon, he said.
Investors and traders have been nervous lately about economic growth running too hot and inflation overshooting and whether those conditions might lead the Fed to increase rates more aggressively than planned.
Wall Street got off to an incredibly strong start in January this year after a banner 2017.
But the stock market tanked in early February after a higher-than-expected wage number in January’s jobs report sparked fears of inflation and rising rates. Stocks on a closing basis eventually bottomed out on Feb. 8, briefly plunging into 10 percent correction territory. The market had been up for six straight sessions before declines on Tuesday and Wednesday.
Bullard is not a voting member this year on the Fed’s policymaking panel, the Federal Open Market Committee. But he’s still part of the conversation.
