FirstFT: Fed official says it is ‘fantasy’ to think modest rate rises will tame inflation

James Bullard, president of the St Louis branch of the Federal Reserve, has warned it is a “fantasy” to think the US central bank can bring down inflation sufficiently without raising interest rates to a level where they constrain the economy.

Bullard, a voting member of the policy-setting Federal Open Market Committee and one of its foremost hawks, said the central bank needed to be more aggressive in its efforts to root out the highest inflation in four decades as he called for rates to rise to a point where they actively curtail growth.

That is the level at which rates neither fuel nor restrict economic activity and is estimated to be about 2.4 per cent. Bullard said the central bank would need to get beyond that threshold as quickly as possible this year if it wanted to bring inflation closer to the Fed’s longstanding 2 per cent target.

“There’s a bit of a fantasy, I think, in current policy in central banks,” Bullard said in an interview with the Financial Times. “Neutral is not putting downward pressure on inflation. It’s just ceasing to put upward pressure on inflation.”

His comments came on the day it was confirmed that consumer price growth had surged to 8.5 per cent in March, its fastest pace since 1981.

However, there were signs that rises in “core” CPI, which strips out food and energy prices, were beginning to slow. It rose 0.3 per cent last month, the slowest rise since September and equivalent to an annual rise of 6.5 per cent.

Read more on US inflation

• Analysis: Robert Armstrong breaks down the inflation report in his daily Unhedged email. He calls the report “surprisingly benign” and points to falling used car prices as one of the reasons for the lower than expected increase in core CPI.

Do you think core inflation has peaked? Email me at firstft@ft.com. Compare international prices rises with our inflation tracker.

Thanks for reading FirstFT Europe/Africa. Here’s the rest of the day’s news — Gordon

Five more stories in the news

1. Police seek ‘person of interest’ in New York subway shooting The New York Police Department named Frank R James, 62, as a “person of interest” after a gunman opened fire on commuters on a Brooklyn subway car. Police said they recovered a key to a U-Haul moving van rented in Philadelphia that they believed was linked to the incident. The shooter remains at large.

Read more: The subway has become a particular cause for concern for authorities in New York wrestling with rising levels of crime, report Joshua Chaffin and Sara Germano.

2. Exclusive: Peloton activist investor takes aim at new chief executive Blackwells Capital, which called in January for Peloton to fire co-founder John Foley, has taken aim at its new chief executive. The activist investor argues that Barry McCarthy has failed to reform the connected-fitness company’s governance or justify its continued independence.

3. Biden describes Putin’s actions in Ukraine as ‘genocide’ Speaking at an event in Iowa yesterday, the US president referred to Vladimir Putin’s actions in Ukraine as “genocide” for the first time, in an apparent escalation in the White House’s rhetoric against Russia.

4. Yen falls to 20-year low against the dollar The Japanese currency fell to its lowest level since 2002 against the greenback after the Bank of Japan said it would continue with its stimulus measures in order to bolster the economy at a time when central banks around the world were beginning to tighten monetary policy — the Reserve Bank of New Zealand today raised rates by half a percentage point.

5. British prime minister fined for Covid breaches Boris Johnson became the first UK prime minister found to have committed a criminal offence while in office after police fined him alongside his wife Carrie and chancellor Rishi Sunak for an illegal birthday party held at Downing Street during a Covid-19 lockdown.

The day ahead

Ukraine war Top arms makers, including Lockheed Martin, Raytheon and L3 Technologies, will meet Biden administration officials at the White House today to discuss increasing lethal aid to Ukraine. The US has so far provided more than $1.7bn in security assistance to Kyiv.

Banking earnings season begins JPMorgan Chase kicks off the US banks earning season. Revenues are expected to have fallen compared with the same quarter a year ago linked to a slowdown in investment banking activity. Asset manager BlackRock and Delta Air Lines also report first-quarter results.

Economic data The US producer price index, which tracks prices businesses receive for their goods, is forecast to have risen 1.1 per cent in March from February. The annual increase in March is expected to rise to 10.6 per cent from 10 per cent in February.

Monetary policy The Bank of Canada is expected to raise its benchmark interest rate by 0.5 percentage points to 1 per cent, according to economists polled by Refinitiv, to combat surging inflation.

What else we’re reading and listening to

Biden and Ukraine: from climate champion to oil price panic US president Joe Biden was elected with bold plans for the green transition. But ahead of midterm elections he is facing an energy crisis, writes our US energy editor Derek Brower.

Russia’s new commander in Ukraine Alexander Dvornikov was promoted to an army general by Vladimir Putin after overseeing Russia’s brutal military operations in Syria. He has now been charged by Moscow with rebooting Russia’s Ukrainian war effort.

‘The rest of the world should watch what is happening in Shanghai’
The total Covid lockdown of China’s predominant business hub will affect the economies of the entire world, writes the FT’s Asia editor Robin Harding, and yet it is happening at a time when many people in Europe and the US are ready to ignore the whole thing.

The future of antibiotics This special report examines increasing global resistance to antibiotics, the pressures doctors are under to prescribe, what new treatments are in the pipeline, and the role the consumer can play in reducing their use in the food chain.

Breaking the silence on disability in the workplace The FT’s Working It podcast is about doing work differently. This week, host Isabel Berwick argues that while we have heard a lot about diversity and inclusion in workplaces, one group is often left behind: people with disabilities.

Property

Mérida, the capital of Yucatán state, has preserved its colonial-era architecture and boasts proximity to beaches and Mayan ruins. No surprise, then, that international homebuyers are flocking to Mexico’s safest city.