Federal Reserve Bank of St. Louis President James Bullard said OPEC’s decision to cut output was unexpected and an increase in oil prices could make the Fed’s job of lowering inflation more challenging.
“This was a surprise,” he said Monday during an interview on Bloomberg Television with Michael McKee. “Whether it will have a lasting impact I think is an open question.”
Bullard does not vote on monetary policy this year.
“Oil prices fluctuate around. It’s hard to track exactly. Some of that might feed into inflation and make our job a little bit more difficult,” he said.
“I would’ve expected somewhat higher oil prices anyway with China coming back sooner than expected during the first half of 2023 and with Europe skirting recession,” he said. “And strong data in the US, all of those are are pretty bullish factors for the oil market.”
Bullard said he sees an 80% to 85% probability that financial stresses will ease, the economy will continue to grow at a low rate and the labor market will remain tight, with the remaining odds that the turmoil will translate into a worsening economy.
“The problem with Wall Street is they’ve got too much probability on that branch,” Bullard said.
The Fed has adopted a two-pronged strategy that uses macroprudential tools to deal with banking issues, while it continues to deploy monetary policy to try to reduce inflation, Bullard said.
“You can walk and chew gum at the same time,” he said. “You’ve got the macroprudential tools for financial stress and you’ve got monetary policy to fight inflation.”