(Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said that financial stability issues can be tackled via additional steps to ease bank strains, while monetary policy can keep targeting high inflation. 

“Continued appropriate macroprudential policy can contain financial stress, while appropriate monetary policy can continue to put downward pressure on inflation,” Bullard said Friday in remarks prepared for an event in St. Louis. 

Policymakers lifted their benchmark rate by a quarter point on Wednesday, continuing their battle against stubbornly high inflation despite lingering uncertainty over how much the domestic economy will be upended following the second-biggest bank failure in US history. 

The move comes after the US government stepped in to guarantee deposits at two failed firms and after the Fed introduced a new emergency lending program meant to backstop other banks. The Fed also worked to boost international access to dollars by enhancing swap lines with its key central bank counterparts. 

The rate increase brought the Fed’s benchmark rate to a target range of 4.75% to 5% and economic projections from Fed officials showed the median official sees rates rising to 5.1% by the end of this year. That would suggest at least one more quarter point rate increase this year. 

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Fed Chair Jerome Powell said the central bank will raise rates higher than expected if needed to quell inflation, but also acknowledged that a sharp pullback in lending sparked by the banking turmoil would lessen the need for further rate increases. 

Bullard, who does not vote in monetary policy decisions this year, did not specify in his remarks whether interest rates should keep rising or give a forecast for where he thinks rates are headed. On Friday morning, investors further downgraded the odds of any more rate increases this year and ramped up bets on rate cuts beginning in June.

The Fed official said recent data show the US economy was stronger than expected at the start of this year and that GDP growth improved in the second half of 2022. Still, he said the Fed’s decision to front-load rate increases is helping to keep inflation expectations low. “This bodes well for the disinflationary process in 2023,” Bullard said. 

The St. Louis Fed chief also named some other examples of incidents where industries struggled to adjust their business models as interest rates rose, adding that they did not necessarily cause substantial harm to the economy. 

“These events received considerable attention at the time, but were not ultimately harbingers of poor U.S. macroeconomic performance,” Bullard said.

Periods of financial stress can also lead to lower interest rates if Treasury yields fall, which can help to “mitigate” some of the fallout, he said. 

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