St Louis Federal Reserve president James Bullard says a US recession is unlikely

Bullard said households, which make up about 70% of the U.S. economy, continue to spend, buoyed by savings built up during the pandemic as well as housing wealth.

“Households appear to be in a great position to spend going forward,” he said. “They are flush. They still have $3.5 trillion ($5 trillion) in COVID aid that’s more or less unspent,” which is “something on the order of 10% of GDP that’s left in people’s bank accounts. people “.

The labor market “is very strong,” with about two job openings for every unemployed person, Bullard said, and nonfarm payrolls are operating at an above normal rate. “It just doesn’t look on the household side that you would be at any imminent stages of significant household withdrawal.”

Bullard did not specifically address the July meeting in his comments, although he was among the most hawkish Fed officials.

The St. Louis Fed chief’s upbeat view on the economic outlook contrasts with the outlook of a number of prominent economists – including former Treasury Secretary Lawrence Summers and former New York Fed Chairman Bill Dudley – who warn that efforts to reduce inflation would likely trigger a recession. Powell said this week that a recession was not inevitable, but that it would be “difficult” to force a soft landing.

Balance sheet

Bullard was the first Fed official to call for a reduction in bond purchases, pushing back the end of purchases to March and the start of a $9 trillion central bank balance sheet reduction to this month. . While uncertainty about COVID-19 has pushed this debate, he said that in hindsight, the committee was too late.

“You had the delta variant and the omicron variant,” Bullard said. “So it was hard to find a time to withdraw those purchases. But we bought until March of this year and, in retrospect, that seems like a year too long for me.

Fed leaders appear to be lining up in favor of 75 basis points, with Fed Governor Michelle Bowman saying on Thursday that she supports a 75 basis point rate hike next month and will continue with hikes. by at least 50 basis points thereafter until price pressures subside.

Governor Christopher Waller said last Saturday he would support another 75 basis point move in July.

Powell and his colleagues pivoted aggressively to tackle the highest inflation in 40 years amid criticism that they left monetary policy too easy for too long as the economy recovered from COVID-19. They have raised rates by 1.5 percentage points this year and officials expect about 1.75 points of further cumulative tightening in 2022.

Bullard, 61, chairman of Bank St. Louis since 2008, pushed earlier than others for the central bank to pivot to an aggressive fight against inflation, with the committee moving to take that view at the over time.

Bloomberg

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