Federal Reserve Bank of St. Louis President James Bullard said Feb. 6 that the strong jobs report from last week may not necessarily mean that inflation will suddenly rise faster than expected, suggesting market fears of prices rising quickly may be misguided.
The report, which showed that the U.S. added 200,000 jobs in January and wage growth picked up to 2.9% year over year, helped spark a sell-off in the equities markets as investors fear rapid inflation growth will lead to further tightening from the Fed.
But Bullard said the relationship that usually predicts strong labor markets leading to higher inflation has not held up for some time.
"I caution against interpreting good news from labor markets as translating directly into higher inflation," he said, according to a news release. "The empirical relationship between these variables has broken down in recent years and may be close to zero."
Bullard has been wary of the Fed taking an aggressive path on rate hikes, though he is not a voting member at the Federal Open Market Committee this year.
He told reporters after the Kentucky event that it was "the most predicted sell-off of all time" because markets had consistently been rising without significant downturns, according to Bloomberg News. He also said he would be interested in seeing an analysis on how big of a part algorithmic trading may have played in the rapid drop Feb. 5.
