The Central Bank Should Raise the Interest Rates by 3%, Says James Bullard

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James Bullard, the president of the St. Louis Fed, said today that he wanted to convince the public that the central bank is serious about fighting inflation. Hence, the central bank should raise the interest rates by 3%, equivalent to 12 times this year. 

Bullard made a bold statement during this week’s meeting of the Federal Reserve. He said that he would like to see the benchmark interest rates of the central bank increase from 0% to 3%. 

According to him, this raise would adjust the policy rate to an appropriate level for the current circumstances. The Federal Open Market Committee on Wednesday conducted a two-day meeting and said that it would increase the rates of banks by 0.25 percentage points overnight. This is the primary increment with which the FOMC moves historically. Accompanied economic directions show a seven rate hike path or 1.75 percentage points this year. 

Since December 2018, there has been no hype in the interest rates by the Fed. An increase in rates comes into the picture this year for the ecstatic speed of the prices of commodities. The prices are rising at their fastest pace in 40 years. 

Bullard voted against the move, and he was the sole member of FOMC who did that. He explained his action by saying he would have preferred 50 basis points or 0.5 % points. He added that the Fed should curb its $9 trillion bond holdings (accumulated over 14 years). 

In his statement today, he said that to fight inflation, the Fed is focusing on the people of the lower class in the economy and helping them. 

He said that people with modest/ low incomes suffer the most during inflation as mostly they are not capable of living to the rising cost of living. Combining a country’s far too high inflation and solid economic performance means the committee fails to manage the current U.S. macroeconomic situation, and its policy rate is meagre. 

So, this year to proceed cautiously with the rates, Fed officials were divided overall. 

The post-meeting statement stated that the committee’s reduction of holding treasury securities, agency debt, and agency mortgage would begin with a coming meeting. The process might start as soon as May, said Jerome Powell, the chairman of Fed.

Nitish Vaibhav
Nitish Vaibhav
I am an Entrepreneur. I believe building a Network and staying connected to the world will give you Wealth.

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