St. Louis Federal Reserve President James Bullard downplayed recession fears in the second half of 2023 and noted that he is in favor of more interest rate hikes.
“Wall Street’s very engaged in the idea there’s going to be a recession in six months or something, but that isn’t really the way you would read an expansion like this,” Bullard said in an interview with Reuters.
Bullard explained that the labor market is “very strong,” which typically leads to a “strong consumption” to support an economy. He added that, “it doesn’t seem like the moment to be predicting that you have a recession in the second half of 2023.”
His comments come days after U.S. central bankers said in the Federal Open Market Committee (FOMC)’s latest meeting that there may be a “mild recession” beginning later this year. Bullard said that forecasts predicting recessions are set by models that assume interest rates were raised too high too quickly, instead of other factors.
“What about the strong labor market? What about that feeding consumption?,” he said. “What about the pandemic money still to be spent off, both at the state and local level and at the individual household level?”
“Inflation is coming down, but not as fast as Wall Street expects,” Bullard added.
Other factors of the U.S. economy remain strong, as the unemployment rate dropped to 3.5 percent last month and the U.S. gained 236,000 jobs. The Fed hiked interest rates in March by 0.25 percentage points, which sets the baseline rate range from 4.75 to 5 percent.
Bullard told Reuters that the interest rates may need to be hiked even further, saying that it should increase by at least another half percentage point to between 5.50 percent and 5.75 percent.