While a number of Fed critics, including former New York Fed President William Dudley, have criticized the central bank for not being upfront with Americans about the level of pain that will be required to bring down inflation, Bullard disagreed and said today’s situation wasn’t too similar to the 1970s. Market pricing of Fed intentions means the tightening of policy has happened well in advance of actual rate hikes, unlike the Paul Volcker-led central bank, he said.
“I think that that means we have a better chance of success,” he said. “So strict comparisons to Volcker I think are inappropriate at this juncture.”
Fed critics are also basing their expectations of considerable pain needed to douse price pressures on the Phillips curve relationship between rising unemployment and falling inflation, which hasn’t worked in recent years, Bullard said. Instead, inflation should come down from reducing inflation expectations.
“We’ve got a better chance of success with less disruption to the economy than Volcker would have had,” Bullard said.
He instead cited the experience of the Fed’s tightening in 1994 led by Alan Greenspan, when rates rose by 3 percentage points without a recession, setting the stage for “a stellar second half of the 1990s.”
“So I’m hopeful that we can get a similar performance here,” Bullard said.
Fed officials have been united in their calls for tightening to douse inflation near a four-decade high. Earlier, Evans said in a CNBC Europe interview he favored continued hikes, though he also said he could see rates peaking in March followed by a pause in any moves and possibly declines.
Neel Kashkari, in separate remarks during an online interview conducted by the Wall Street Journal, said the Fed should keep tightening until it saw compelling evidence that core inflation was falling and then “be patient,” while nodding to the danger that officials could go too far.
“There’s a lot of tightening in the pipeline. We are committed to restoring price stability but we also recognize given these lags there is a risk of overdoing it,” he said. Asked if he saw grounds for an even larger 100 basis-point increase, Kashkari said “the pace that we’re undertaking right now is appropriate.”
This article was provided by Bloomberg News.