US labour market may put upward pressure on inflation, says Fed's Bullard

The United States' relatively tight labour market may place upward pressure on inflation, strengthening the case for higher interest rates in that country, said St Louis Federal Reserve president James Bullard.

"By nearly any metric, US labour markets are at or beyond full employment," said Bullard in notes for a speech given in Beijing, China.

"In short, labour markets are relatively tight," said the voting member of the US Federal Reserve's policy-setting committee. "This may put upward pressure on inflation going forward."

Bullard was quoted by Reuters as stating that this was an "important factor supporting the Federal Open Market Committee (FOMC) view on the expected path of the policy rate".

His speech cited three factors favouring the FOMC's scenario of a slow or gradual normalisation of the US policy rate -- the relatively strong US labour markets, inflation measures moving closer to its 2% target and waning international headwinds.

By contrast, the market-based expectation for the policy rate was much shallower, with only a few increases over the forecast horizon —- that was, almost no normalisation, he said.

"US evidence from labour markets, actual inflation readings and global influences suggests the FOMC median projection may be more nearly correct," he said.

However, Bullard noted evidence from recent readings on GDP growth and market-based inflation expectations suggested the "market view of the path of the policy rate may be more nearly correct".

Bullard is the latest Fed official to comment on US interest rates. He follows several others who jawboned their opinions in recent weeks, some of which fanned the flames of a possible June hike. The FOMC's April minutes suggested a more hawkish stance on rates.