After the hot March Consumer Price Index report was released on Wednesday, traders started shifting their expectations for when the Federal Reserve will start cutting rates.
One person who has an inside look into how the Fed views those reports is former Federal Reserve Bank of St. Louis President and current Purdue Daniels School of Business Dean James Bullard.
Bullard thinks the FOMC was ready to cut rates in the first quarter, but the hot inflation reports caused them hold back.
On the possibility of another rate hike coming before a rate cut, Bullard thinks that rather than raising rates, the hawks on the committee "can just stay where they are because the policy rate is pretty high, and it has been viewed as restrictive."
The biggest battle for the Fed has been getting inflation down to its 2% target. The central bank has kept rates at a restrictive level and yet inflation has proven to be stickier than many people thought. So, how can the central bank bring inflation down without sacrificing jobs? As Bullard describes it, it is an "art form" to try to strike a balance, but with "the relatively high value of the policy rate and expectations of inflation lower than they were, lets say, a year-and-a-half ago, I think that that means the price change in the economy will eventually come back to the 2% target." He adds that "we’re still on track for a soft landing, but it’s going to take a little longer than previously thought."
Overall, "even though inflation isn’t quite down to the target yet," Bullard believes the Fed "will still get inflation down to 2% with a pretty strong economy."
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