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Fed's Bullard Thinks Probability Of Soft Landing Is Up This Year: 'Fight Inflation Now...Get It Back To 2%'

Benzinga · 01/06/2023 07:02

St. Louis Federal Reserve President James Bullard has reportedly expressed optimism that 2023 could finally bring relief from inflation and that the risk of a U.S. recession has come down in recent weeks.

The Federal Open Market Committee “has taken aggressive action during 2022, with ongoing increases in the policy rate planned for 2023, and this has returned inflation expectations to a level consistent with the Fed’s 2% inflation target,” Bullard said in material prepared for a presentation before a meeting held by the CFA Society St. Louis, according to Reuters.

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“During 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes,” he said.

Bullard also said he is increasingly upbeat the central bank can meet its goal of reducing inflation without pushing the economy into a recession, as many Fed critics and economists now believe will happen.

Soft Landing: "The probability of a soft landing has increased compared to where it was in the fall of 2022, where it was looking more questionable," Bullard told reporters.

"And the reason I think that the prospects for a soft landing have increased is that the labor market has not weakened the way many had predicted," he said according to the report.

Employment data released on Thursday showed the labor market remains strong as private sector employment increased by 235,000 jobs in December and annual pay was up 7.3% year-over-year. At the same time, weekly jobless claims declined to 204,000.

As a result, major Wall Street indices closed over 1% lower on Thursday. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 1.14% lower while the Vanguard Total Bond Market Index Fund ETF (NASDAQ:BND) lost 0.11%.

"The labor market can remain fairly resilient during 2023," Bullard added while observing that many companies are still hiring.

The Fed official also noted that this is a great time to fight inflation because of the strong job market. "Fight inflation now, get it under control, get it back to 2% while you've got the resilient labor market," he said.

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