St. Louis Fed President James Bullard said yesterday that FOMC aggressive actions in 2022 and planned rate hike in 2023 has “returned inflation expectations to a level consistent with the Fed’s 2% inflation target.”

“During 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes,” he said.

“The policy rate is not yet in a zone that may be considered sufficiently restrictive, but it is getting closer,” he added.

Regarding the economy, Bullard noted, “The probability of a soft landing has increased compared to where it was in the fall of 2022, where it was looking more questionable… And the reason I think that the prospects for a soft landing have increased is that the labor market has not weakened the way many had predicted” and growth levels rebounded from weakness”.

Atlanta Fed President Raphael Bostic inflation is “way too high” in the US and the FOMC remains “determined to use our policy tools to bring inflation back toward our objective.”

“I appreciate recent reports that include signs of moderating price pressures, but there is still much work to do,” Bostic added. “The most recent report showed the Fed’s preferred measure of inflation running at a 5.5% annual rate.”

Kansas City Fed President Esther George said in a CNBC interview that she has raised her forecast on interest rate to over 5%. Also, “I see staying there for some time, again, until we get the signals that inflation is really convincingly starting to fall back toward our 2% goal”. Interest rate will stay above 5% well into 2024.

“Where we really see the persistence in that inflation seems to be in the non-housing part of the services side of the economy,” George said. “So, I think that’s going to be where I’ll be watching for the real clues to see whether we are getting traction with our policy in that area.”

“I’m not forecasting a recession, but I’m quite realistic that when you see below-trend growth — and the idea that our instrument is going to work on demand, bringing that down — it doesn’t leave a lot of margin there,” George said. “Not my forecast, but I do understand that bringing demand down creates that sort of possibility.”

In the minutes of the December FOMC meeting, the participants agreed that inflation was “unacceptably high”. They “concurred” that inflation data showed “welcome reductions in the monthly pace of price increases”, but “stressed that it would take substantially more evidence of progress to be confident that inflation was on a sustained downward path.”

Also, participants noted that risk to inflation outlook remained “tilted to the upside”, with possibility of “more persistent than anticipate” price pressures. Meanwhile, risks to economic activity outlook were “weighted to the downside”.

Participants continued to anticipate that “ongoing increases in the target range for the federal funds rate would be appropriate”. “No participant” anticipated that it’s appropriate to start lowering rates in 2023. They generally observed that a “restrictive policy stance would need to be maintained” for some time. Also, “several participants commented that historical experience cautioned against prematurely loosening monetary policy.”

Full minutes here.