The US Federal Reserve could raise interest rates rapidly this year and at the same time create the conditions for an “impressive” economy in the coming years if it manages to repeat the success of the tightening cycle it carried out in 1994, the president of St . Louis Fed, James Bullard as reported by Reuters.
“The tightening of the policy caused some upheaval at the time,” Bullard said in a speech in Barcelona, ​​Spain. “However, I always believed that it created the conditions for the impressive performance of the American economy in the second half of the 1990s. … I hope we can do the same today.”
In 1994, the US Federal Reserve doubled its interest rate to 6%, raising a total of seven interest rates, one by 75 basis points and the other two by 50 basis points. The Fed managed to smooth the economy – avoiding a recession – and followed a period of rapid growth with a sharp decline in unemployment.
Bullard said, however, that the Fed still has a long way to go to reduce inflation. “We have moved fast, but we started from a low level and from very facilitative conditions in monetary policy,” he explained.
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Source: Capital
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