Retailers who continually raise prices and fail to understand that consumers are being strained by inflation will lose market share, St. Louis Fed President James Bullard said Friday.
“A lot of CEOs have come on TV and said ‘oh, I have a lot of pricing power and I can do whatever I want and make a lot of money,'” Bullard said Friday, in an interview on the Fox Business Network.
“But I think some of them are going to get hit in the face here with the fact that consumers have to react” to higher inflation, he said.
Households only have a limited number of dollars flowing into their bank accounts and they have to decide what to buy. They will choose the basic necessity over the luxury good, Bullard added.
This momentum will help moderate inflation, Bullard said.
In the interview, Bullard gave no indication that this month’s stock market selloff had caused him to waver in his support for half-percentage-point rate hikes at the next two Fed meetings. in June and July.
These two measures would take the Fed’s benchmark federal funds rate to a range of 1.75 to 2% by August.
“50 basis points is a good plan for now,” he said.
“We need to get inflation under control and I think we have a good plan to do that,” Bullard said.
Some of the stock market revaluation could be due to the Fed, but other factors were also at play, he said.
Bullard said he would still like to see the Fed raise its benchmark interest rate to 3.5% by the end of the year. It’s a more aggressive path than most of his colleagues have outlined.
The president of the St. Louis Fed said that reaching a rate of 3.5% could eventually allow the central bank to lower rates in 2023 or 2024.
Bullard played down fear of a recession or stagflation.
Stagflation means recession with inflation continuing to rise, he said.
“I don’t see that as a storyline here,” Bullard said. In fact, he predicted that US economic growth will be stronger after June than it was in the first six months of the year.
And Bullard said it would take a “big shock” to push the US into a recession and he doesn’t see that on the horizon.
Stocks closed flat after a volatile session on Friday as the S&P 500 SPX,
briefly fell into bearish territory. The yield of the 10-year Treasury note TMUBMUSD10Y,
fell below the 2.8% mark.
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