Fed's Bullard: Rate hikes have had 'limited influence' on inflation so far

James Bullard, president of the Federal Reserve Bank of St. Louis, stated on Thursday that the central bank has much work to do before bringing inflation under control.

James Bullard, president of the Federal Reserve Bank of St. Louis, said Thursday that the central bank still has a lot of work to do before it can stop inflation.

As a voting member of the Federal Open Market Committee, which sets interest rates, Bullard spoke about making policy based on rules. Bullard said that the Fed hasn't done enough so far, based on the standards set by John Taylor, an economics professor at Stanford.

"So far, the change in the monetary policy stance doesn't seem to have had much of an effect on inflation," he said. "However, market prices suggest that inflation will go down in 2023."

Even with what he called "generous" assumptions about the Fed's progress in fighting inflation so far, he said in a series of slides that "the policy rate is not yet in a zone that may be considered sufficiently restrictive."

"The policy rate will need to be raised even more to reach a level that is restrictive enough," he said in the presentation.

Recent data suggest that inflation may be slowing down. The consumer price index went up by 0.4% in October, which was less than what the market was expecting. The annual rate is now 7.7%, which is down from the 41-year high it hit in the summer but still well above the Fed's goal of 2%. A different measure that Fed officials like puts core inflation, which doesn't include food and energy, at 5.1% per year. This is still too high and doesn't meet the goal.

There isn't much disagreement at the Fed about whether or not rates need to keep going up. Most members have suggested a few more increases over the next few months, which would take the central bank's benchmark overnight borrowing rate from its current target range of 3.75–4% to around 5%.

Bullard's presentation, on the other hand, said that 5% could be the low end of the range for where the funds rate needs to be, while 7% could be closer to the upper end. That is not at all in line with how the market prices things right now. The federal funds rate is also expected to peak around 5% by the middle of 2023.

According to the Taylor Rule, the funds rate must be a certain amount based on inflation and economic growth.Recent growth in inflation has slowed, but the annual rate is still close to the highest it has been in more than 40 years.

Bullard's comments come after several other Fed officials said that policymakers needed to keep up the pressure on inflation but that they could ease up a bit from the recent increases. Four times in a row, the Fed has raised interest rates by 0.75 percentage points. The December FOMC meeting is widely expected to result in a move of 0.5 percentage points.

Even though she agrees with the rate hikes, Kansas City Fed President Esther George told The Wall Street Journal on Wednesday that she is worried about how the tightening of policy could affect the economy.

"In my 40 years at the Fed, I've never seen this kind of tightening without some painful results," George told the Journal, naming "contraction" as one of the possible outcomes.

George is also a voting member of the FOMC.

In other recent comments, Fed Governor Christopher Waller said on Wednesday that he is open to the idea of "stepping down" the level of rate hikes, but that he will need more evidence before he is convinced that inflation has reached a plateau.

Also, Mary Daly, president of the San Francisco Fed, told CNBC on Wednesday that she expects more rate hikes and that "a pause is off the table" even if there are fewer rate hikes.

On Thursday, several regional Fed presidents and Governor Michelle Bowman will be among the Fed speakers.