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Fed’s James Bullard expresses confidence that the economy can achieve a ‘soft landing’

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James Bullard

Olivia Michael | CNBC

St. Louis Federal Reserve President James Bullard said Tuesday that he still thinks the economy can avoid a recession, despite the fact that he expects the central bank might want to keep mountain climbing rates to manage inflation.

“I feel that inflation has are available in hotter than what I’d have expected throughout the second quarter,” the central bank official said during a speech in Latest York. “Now that that has happened, I feel we will must go a little bit bit higher than what I said before.”

The fed funds rate, which is the central bank’s benchmark, likely can have to go to three.75%-4% by the tip of 2022, Bullard estimated. It currently sits at 2.25%-2.5% following 4 rate hikes this 12 months. The speed sets the extent banks charge one another for overnight lending but feeds through to many adjustable-rate consumer debt instruments.

Nevertheless, Bullard said the Fed’s credibility in its dedication to fight inflation will help it avoid tanking the economy.

Bullard compared the Fed’s current situation to the issues central banks faced within the Nineteen Seventies and early ’80s. Inflation is now running at the best points since 1981.

He expressed confidence that the Fed today is not going to must drag the economy right into a recession the best way then-Chairman Paul Volcker did within the early Nineteen Eighties.

“Modern central banks have more credibility than their counterparts within the Nineteen Seventies,” Bullard said during a speech in Latest York. “For this reason … the Fed and the [European Central Bank] may give you the option to disinflate in an orderly manner and achieve a comparatively soft landing.”

Markets recently have been making the alternative bet, namely that a hawkish Fed will hike rates a lot that an economy that already has endured consecutive quarters of negative GDP growth will fall right into a recession. Government bond yields have been heading lower, and the spread between those yields has been compressing, generally an indication that investors are taking a dim view of future growth.

The truth is, futures pricing indicates that the Fed can have to follow its rate increases this 12 months with cuts as soon because the summer of 2023.

But Bullard argued that the flexibility for the Fed to steer the economy toward a soft landing rests largely on its credibility, specifically whether the financial markets and the general public consider the Fed has the desire to stop inflation. He differentiated that from the Nineteen Seventies era when the Fed enacted rate hikes when faced with inflation but quickly backed off.

“That credibility didn’t exist in the sooner era,” he said. “We’ve got rather a lot more credibility than we used to have.”

Bullard will appear Wednesday on CNBC’s “Squawk Box” starting at 7:30 a.m. ET.

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