Fed's Bullard discounts recession talk, favors more rate hikes, 'higher for longer'

 The U.S. central bank should continue raising interest rates on the back of recent data showing inflation remains persistent while the broader economy seems poised to continue growing, even if slowly, St. Louis Federal Reserve President James Bullard said.

In comments countering views that the U.S. is heading towards a banking crisis, a recession, or both in the near future, Bullard told Reuters in an interview: "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."

Investors may see rate cuts in the Fed's near future, part of a recession-breeds-accommodation view of the world, but "the labor market just seems very, very strong. And the conventional wisdom is that if you have a strong labor market that feeds into strong consumption ... and that's a big chunk of the economy ... it doesn't seem like the moment to be predicting that you have a recession in the second half of 2023," he said.

Despite the current 3.5% unemployment rate, Fed staff at the central bank's March 21-22 policy meeting said they also anticipate a "mild recession" this year, while Bullard's colleagues have penciled in an economic outlook that indicates zero growth or a contraction for much of the rest of the year after a relatively strong first quarter.

In the case of the staff forecast, the fallout from recent stress in the banking sector seemed to tip the scales.

But if two U.S. bank failures last month were going to spark a crisis, Bullard said, it'd likely be showing up in things like the St. Louis Fed's financial stress index. The index did spike after the March 10 collapse of Silicon Valley Bank, but it quickly reverted to a normal reading.

"If you were really going to get a major financial crisis out of this, that index would spike up to a four or five. It's zero now. So it doesn't look, as of this moment, like too much is happening," Bullard said.

https://finance.yahoo.com/news/exclusive-feds-bullard-discounts-recession-130658142.html