Retailers who endlessly raise their prices and don’t understand that consumers are overwhelmed by inflation will lose market share, St. Louis Fed President James Bullard said on Friday.
“A lot of CEOs came on TV and said, ‘Oh, I have a lot of control over pricing and I can do whatever I want and make a lot of money,'” Bullard said in an interview on Fox Business Network on Friday.
“But I think some of them are being slapped in the face here with the fact that consumers need to respond to higher inflation,” he said.
Households only have a limited number of dollars in their bank accounts and they have to make decisions about what to buy. They will choose the basic need rather than the luxury good, Bullard added.
Those dynamics will help moderate inflation, Bullard said.
In the interview, Bullard gave no indication that this month’s stock market sell-off had faltered his support for a half-percentage-point rate hike at the next two Fed meetings in June and July.
These two moves would raise the Fed’s benchmark interest 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 for that,” Bullard said.
Part of the stock market’s repricing may be due to the Fed, but other factors also played a role, he said.
Bullard said he would still welcome the Fed raising interest rates to 3.5% by the end of the year. That’s a more aggressive path than most of his peers are mapped out to be.
The St. Louis Fed President said a 3.5% interest rate could potentially allow the central bank to cut rates in 2023 or 2024.
Bullard downplayed fears of recession or stagflation.
Stagflation means a recession with inflation continuing to rise, he said.
“I don’t see this as a scenario,” Bullard said. In fact, he predicted that US economic growth after June will be stronger than in the first six months of the year.
And Bullard said it would take a “big shock” to push the US into recession, and he doesn’t see that on the horizon.
Shares ended flat after a volatile session on Friday, as the S&P 500 SPX briefly dipped +0.01% into bear-market territory. The yield on the 10-year TMUBMUSD10Y Treasury note, 2.791%, slipped below 2.8%.