Fed’s Bullard, Mester Advocated for Half-Point Increase at Last FOMC Meeting

President and CEO of the Federal Reserve Bank of St. Louis James Bullard speaks during an interview with AFP in Washington on August 6, 2019. (Alastair Pike/AFP via Getty Images)

While the Federal Reserve voted to raise interest rates by 25 basis points this month, two central bank officials have revealed that they advocated for larger rate increases to combat elevated inflation.

St. Louis Fed Bank President James Bullard told reporters at the Greater Jackson Chamber in Jackson, Tennessee, during an event that he advanced the case for a 50-basis-point boost to the benchmark fed funds rates at the February Federal Open Market Committee (FOMC) policy meeting.

“I was an advocate for a 50-basis-point hike, and I argued that we should get to the level of rates the committee viewed as sufficiently restrictive as soon as we could,” he said.

Cleveland Fed Bank President Loretta Mester said in a virtual speech to a Global Interdependence Center conference on Feb. 16 that she also supported the central bank lifting rates higher than what occurred.

Bullard and Mester aren’t voting members of the Fed’s interest-rate committee this year, having rotated off after voting last year.

At the two-day rate-setting committee meeting, officials voted to raise the overnight interest rate by a quarter point to a target range of 4.50 to 4.75 percent.

Loretta J. Mester, president and CEO of the Federal Reserve Bank of Cleveland, looks on at Teton National Park, where financial leaders from around the world gathered for the Jackson Hole Economic Symposium outside Jackson, Wyo., on Aug. 26, 2022. (Jim Urquhart/Reuters)

But while there has been some speculation that the Fed could soon hit the pause button on its tightening campaign and eventually pivot, Bullard repeated the central bank narrative that more rate increases should happen this year to ensure that the disinflation trend persists and the annual inflation rate eventually returns to its 2 percent target rate.

“Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low,” he said in prepared remarks.

Overall, the two Fed officials believe that it’s necessary to bring the fed funds rate to a restrictive level of above 5 percent to contain inflation, as it may be showing signs of being stubborn and perhaps sticky.

Last week, data released by the Bureau of Labor Statistics showed that the consumer price index (CPI) eased to 6.4 percent on an annual basis in January, down from 6.5 percent a month earlier. The monthly inflation rate also climbed by 0.5 percent, up from 0.1 percent in the previous month.

The producer price index (PPI) jumped by 0.7 percent month-over-month in January. The core PPI, which eliminates the volatile energy and food sectors, slowed to a higher-than-expected pace of 5.4 percent year-over-year.

The latest inflation data has left some economists concerned that the disinflation process seen in the U.S. economy in recent months might have stalled.

“The .7% spike in Jan. #PPI and the .5% jump in core, both almost twice expectations, indicate that future #CPI prints will soon resume their uptrend,” Peter Schiff, chief economist and global strategist at Euro Pacific Capital, posted on Twitter. “Disinflation is over. Jan. could be the low for both the PPI and CPI. #Inflation is here to stay and it has no where to go but up.”

However, Bullard remains optimistic that 2023 could be “a disinflationary year.”

At the same time, before the Fed can even consider easing its quantitative tightening campaign, Mester noted that “we will need to see continued sustained disinflation in both components.”

According to the CME Group FedWatch Tool, investors anticipate that the Fed will raise interest rates by a quarter point at its next meeting.