Inflation expectations lower due to Fed's front-loaded policy, says official

ISTANBUL

US Federal Reserve Bank of St. Louis President James Bullard said Thursday inflation expectations are lower now, in part due to the Fed's front-loaded monetary policy last year.

Fed has been raising the policy rate over the last year to combat the highest inflation in the US since the early 1980s, Bullard said during his speech at the Arkansas Bankers Association.

The US central bank's monetary tightening cycle that began last year was one of its most front-loaded in decades, in which it made bigger rate hikes earlier and followed those by smaller ones.

Fed made a total of 425-point interest rate increases on seven occasions last year to fight record-high inflation that climbed to its highest level in over 40 years by mid-2022.

It later made a 25 basis points of a rate hike on Feb. 1, followed by another 25 basis points of hike on March 22 that carried its benchmark funds rate to a range of 4.75% to 5%.

"Headline inflation has declined, but it can be inordinately influenced by fluctuations in volatile prices," Bullard said.

The St. Louis Fed president also talked about the recent banking turmoil in the US, and said regulatory authorities are ready to take additional action as necessary.

"Closely related measures suggest that financial conditions have become tighter," he said. "However, financial stress and financial conditions metrics as of today remain low compared with levels observed during the Global Financial Crisis of 2007-2009 or during the onset of the pandemic in March-April 2020."