Recession Fears Have Been ‘Blown Out of the Water,’ Long-Serving Fed Prez Says

livemint.com:

SVB situation, rates actually went down in the spring. And there’s been an unwitting easing of financial conditions, which is feeding into a stronger second half for the U.S. economy.

And now everyone’s scrambling to reprice based on that stronger economy. WSJ: To what extent would the Fed need to worry about stronger growth, even in the context of continued declines in inflation from things like shelter and cars? Bullard: The faster growth is a bit of a threat because the forecast was that you’d have very weak growth or even a recession, and now that doesn’t really look like it is materializing. So you’d have to upgrade your outlook for inflation probably based on that alone.

You still have a very tight labor market, and now you have a reacceleration in the U.S. economy. The risks are tilting a little bit more toward the idea that inflation won’t fall as fast as anticipated.

WSJ: Do you think we’ll return to the prepandemic environment of low interest rates and low inflation? Bullard: I’m skeptical that we’re returning to that. You’ve got inflation above [the Fed’s 2%] target, and it’s probably going to be relatively sticky above target. Roughly speaking, the policy rate would have to be higher than the inflation rate during that whole period when inflation is above target.

That sounds like a higher interest-rate regime than the one that has existed since 2008. WSJ: How much of the recent decline in inflation can be attributed to Fed policy versus simply good luck on energy and supply chains? Bullard: I think the Fed should get a lot of credit. Yes, there are shocks out there in the world, but the question is how do you react to those shocks? And in the ’70s, you had similar shocks and the Fed didn’t react enough or