Fed's Bullard says recession will only come if there's a 'large shock' to economy

St. Louis Fed President Bullard forecasts 'pretty good second half of the year' despite economic headwinds

St. Louis Fed President James Bullard does not expect a recession in the U.S. this year or next unless there's a "really large shock" to the economy.

"Recessions would have to come because there’s some really large shock and I can’t rule out that there would be some really big shock. Maybe there would be, but I am not seeing it near-term," Bullard said during an exclusive interview with FOX Business' Edward Lawrence on "Cavuto: Coast to Coast" on Friday. 

He went on to note that he believes the U.S. will experience 2.5 to 3% growth for the year "even with the negative first quarter."

Late last month, the Commerce Department revealed in its first reading of the data that GDP fell at a 1.4% annualized rate in the three-month period from January through March, as snarled supply chains, record-high inflation and labor shortages weighed on growth and slowed the pandemic recovery.  

Despite all the economic headwinds, Bullard forecasted a "pretty good second half of the year," pointing to "the second reopening going on where people are getting used to the endemic phase of the pandemic."

He noted that people want to "be out and about and that’s going to lead to strong consumption this year."

Bullard provided the insight into the economy on Friday as the S&P 500, the broadest measure of the U.S. stock market, slipped into bear market territory on Friday. 

The benchmark is now down 20% from its January high of 4,796.56 and needs to close at or below 3,837.25 for the official start. 

The S&P 500 joins the tech-heavy Nasdaq Composite, which entered a bear market earlier this year and has fallen 29% year to date. 

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 31500.68 +823.32 +2.68%
SP500 S&P 500 3911.74 +116.01 +3.06%
I:COMP NASDAQ COMPOSITE INDEX 11607.620416 +375.43 +3.34%

Bullard acknowledged that there has "been a lot of repricing in markets" and that part of the reason "is due to the Fed."

INFLATION SOARS 8.3% IN APRIL, HOVERING NEAR 40-YEAR HIGH

"I think you would expect with the Fed raising rates that all these assets, trillions of dollars worldwide, would have to be repriced, but we have to get inflation under control and I think we have a good plan to do so," he continued. 

Earlier this month it was revealed that inflation cooled on an annual basis for the first time in months in April, but rose more than expected as supply chain constraints, the Russian war in Ukraine and strong consumer demand continued to keep consumer prices elevated. 

The Labor Department said earlier this month that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries and rents, rose 8.3% in April from a year ago, below the 8.5% year-over-year surge recorded in March. Prices jumped 0.3% in the one-month period from March.

Those figures were both higher than the 8.1% headline figure and 0.2% monthly gain forecast by Refinitiv economists.

The Federal Reserve now faces the tricky task of cooling demand and prices without inadvertently dragging the economy into a recession. 

Bullard pointed out on Friday that inflation "is very tough on low and moderate-income households" and on renters right now. 

"They are sitting in their apartments and their rent is going up dramatically and they’re worse off," he continued. 

"They have to decide where they are going to save money and they are trading down and the kinds of things that they would buy, they’re cutting out some things altogether." 

He then stressed that "businesses have to be cognizant of this or they are going to lose market share."

St. Louis Fed President James Bullard does not expect a recession in the U.S. in the near future unless there's a "large shock" to the economy. (Getty/ iStock )

Bullard said that "a lot of CEOs" believe they have "lots of pricing power" and can do what they want to make a lot of money, but warned that some of those executives "are going to get punched in the face here with the fact that consumers have to react."

"They only have so many dollars coming in the front door and they have to decide what they are going to buy with those dollars," he continued. 

On Tuesday, Federal Reserve Chairman Jerome Powell reiterated his commitment to curbing the highest inflation in decades, indicating the central bank will raise interest rates as high as necessary in order to tame consumer prices. 

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Fed policymakers hiked the benchmark federal funds rate by a half point earlier this month, and Federal Reserve Chairman Jerome Powell has all but promised that two, similarly sized increases are on the table at the forthcoming meetings in June and July. He echoed that sentiment on Tuesday as the Fed races to catch-up with runaway inflation and bring it back down to the 2% target.

On Tuesday, Powell indicated that the central bank will raise interest rates as high as necessary in order to tame consumer prices. 

When asked if 75 basis point hikes would be necessary at some point to curb soaring inflation, Bullard said "50 basis points is a good plan for now."

"I think as always we have to pay attention to incoming data on the economy and on inflation and we’ll do that going forward," he continued. 

"I’ve also said we should try to get to 3.5% by the end of this year, which is higher than some of my colleagues, but I think it would help us," Bullard went on to say. 

"The more we can front load and the more we can get inflation and inflation expectations under control, the better off." 

He then noted that next year and in 2024, "we could be lowering the policy rate because we got inflation under control."

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FOX Business’ Megan Henney and Suzanne O’Halloran contributed to this report.