Fed official: Economy can handle rising rates

WASHINGTON — The U.S. economy is healthy and shows little sign of an imminent recession, and can withstand higher interest rates, St. Louis Federal Reserve president James Bullard said Monday.

Financial markets are flashing signs that an economic downturn could arrive sometime next year, as Americans grapple with the highest inflation in four decades and the Federal Reserve pushes borrowing costs higher. But Bullard said in an interview with The Associated Press that the central bank wouldn’t have to drive the economy into a recession or significantly raise unemployment to bring inflation down to its 2 percent target.

“Now we have lots of inflation, but the question is, can we get (inflation) back to 2 percent without disrupting the economy? I think we can,“he said.

Bullard’s optimism coincides with a rapid pace of interest rate increases by the Fed, intended to combat the highest U.S. inflation in 40 years.

Higher rates limit the ability of consumers and businesses to borrow and spend, which can cool growth and inflation. But they also carry the risk of tipping the economy into a downturn.

Consumer prices rose 8.6 percent in May compared with a year ago, and a government inflation report Wednesday could show that they’ve ticked higher.

Bullard also said he currently supports a 0.75 percentage point increase in the Fed’s benchmark short-term interest rate at its next meeting later this month. Its rate is currently in a range of 1.5 percent to 1.75 percent, after a 0.75 percentage point hike at its June meeting, the largest since 1994.

Separately, Esther George, president of the Federal Reserve Bank of Kansas City, sounded a more cautionary note in a speech Monday, in which she suggested the Fed’s large rate hikes could prove disruptive.

George was the only Fed policymaker to dissent from the Fed’s June rate hike, out of concern that it was too large.