The Federal Reserve may need to raise its benchmark interest rate much higher than previously expected to rein in inflation, James Bullard, who heads the Federal Reserve Bank of St. Louis, said Thursday.

Bullard’s comments raised the possibility that the Fed’s rate hikes will make consumer and corporate borrowing even more expensive and further increase the risk of recession.

Wall Street traders expressed concern as they sent stock futures further into the red on Thursday morning.

The Dow Jones Industrial Average was down about 330 points shortly before trading began.

Bullard’s remarks followed speeches by other Fed officials in recent days that suggested they saw only limited progress, at most, in their use of consistently higher rates to fight inflation.

The Fed’s main short-term interest rate has yet to reach a level that could be justified as sufficiently restrictive, Bullard said.

To reach a sufficiently restrictive level, the policy rate will have to be increased further.

The Fed is looking to raise borrowing rates to a level that dampens economic growth and hiring in order to calm inflation.

The central bank has quickly raised its policy rate by an aggressive three-quarters of a point at each of its past four meetings, the fastest series of hikes since the early 1980s.

The cumulative effect has been to make many consumer and business loans more expensive and increase the risk of recession.

These increases pushed the Fed’s short-term rate to a range of 3.75% to 4%, from near zero last March to its highest level in nearly 15 years.

Bullard suggested the rate may need to rise to between 5% and 7% in order to nullify inflation, which is near a four-decade high.

However, he added that this level could drop if inflation were to subside in the coming months.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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