Retailers who endlessly raise their prices and don’t understand that consumers are stretched thin because of inflation are going to lose market share, said St. Louis Fed President James Bullard on Friday.
“A lot of CEOs have come on TV and said ‘oh I have lots 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 punched in the face here with the fact that consumers have to react” to higher inflation, he said.
Households only have so many dollars coming into their bank accounts and they have to decide what to buy. They are going to choose the basic necessity rather than the luxury good, Bullard added.
This dynamic will help inflation moderate, Bullard said.
In the interview, Bullard gave no indication that the stock market selloff this month had caused him to waver in his support for half-a-percentage point rate hikes at the Fed’s next two meetings in June and July.
Those two moves would lift the Fed’s benchmark fed funds rate up to a range of 1.75-2% by August.
“50 basis points is a good plan for now,” he said.
“We have to get inflation under control and I think we have a good plan to do so,” Bullard said.
Some of the repricing in the equity market might be due to the Fed, but other factors were also at play, he said.
Bullard said he still would like to see the Fed raise its benchmark interest rate up to 3.5% by the end of the year. That’s a more aggressive path than most of his colleagues are sketched out.
The St. Louis Fed president said getting up to a 3.5% rate might possibly allow the central bank to lower rates in 2023 or 2024.
Bullard downplayed fear of a recession or stagflation.
Stagflation means a recession with inflation continuing to move higher, he said.
“I don’t see that as a scenario right here,” Bullard said. In fact, he predicted U.S. 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 U.S. 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
briefly fell into bear-market territory. The yield on the 10-year Treasury note
slipped below 2.8%.