Fed’s Bullard sees more interest rate hikes ahead and no U.S. recession

St. Louis Federal Reserve President James Bullard said Wednesday that the central bank will continue raising rates until it sees compelling evidence that inflation is falling.

The central bank official said he expects another 1.5 percentage points or so in interest rate increases this year as the Fed continues to battle the highest inflation levels since the early 1980s.

“I think we’ll probably have to be higher for longer in order to get the evidence that we need to see that inflation is actually turning around on all dimensions and in a convincing way coming lower, not just a tick lower here and there,” Bullard said during a live “Squawk Box” interview on CNBC.

That message of continued rate hikes is consistent with other Fed speakers this week, including regional presidents Loretta Mester of Cleveland, Charles Evans of Chicago and Mary Daly of San Francisco. Each said Tuesday that the inflation fight is far from over and more monetary policy tightening will be needed.

Both Bullard and Mester are voting members this year on the rate-setting Federal Open Market Committee. The group last week approved a second consecutive 0.75 percentage point increase to the Fed’s benchmark borrowing rate.

If Bullard has his way, the rate will continue rising to a range of 3.75%-4% by the end of the year. After starting 2022 near zero, the rate has now come up to a range of 2.25%-2.5%.

Consumer price inflation is running at a 12-month rate of 9.1%, its highest since November 1981. Even throwing out the highs and lows of inflation, as the Dallas Fed does with its “trimmed mean” estimate, inflation is running at 4.3%.

“We’re going to have to see convincing evidence across the board, headline and other measures of core inflation, all coming down convincingly before we’ll be able to feel like we’re doing our job,” Bullard said.

The rate hikes come at a time of slowing growth in the U.S., which has seen consecutive quarters of negative GDP readings, a common definition of recession. However, Bullard said he doesn’t think the economy is really in recession.

“We’re not in a recession right now. We do have these two quarters of negative GDP growth. To some extent, a recession is in the eyes of the beholder,” he said. “With all the job growth in the first half of the year, it’s hard to say there’s a recession. With a flat unemployment rate at 3.6%, it’s hard to say there’s a recession.”

The second half of the year should see reasonably strong growth, though job gains probably will slow to their longer-run trend, he added. July’s nonfarm payroll growth is expected to be 258,000, according to Dow Jones estimates.

Even with the slowing trend, markets are pricing in another half percentage point rate hike from the Fed in September, though the chances of a third consecutive 0.75 percentage point move are rising. The market then expects future increases in November and December, taking the benchmark fed funds rate to a range of 3.25%-3.5% by the end of the year, below Bullard’s target.

“We’re going to follow the data very carefully, and I think we’ll get it right,” Bullard said.