'People are unhappy': Fed official warns on high inflation

New York(CNN Business) High inflation is making Americans unhappy, and the Federal Reserve must step up its campaign to get prices back under control, a top Fed official said Monday.

"This inflation we're seeing is very bad for low and moderate-income households," St. Louis Federal Reserve President James Bullard told CNBC. "Real wages are declining. People are unhappy. Consumer confidence is declining. This is not a good situation."

Bullard, who has been more worried about high inflation than some of his colleagues, noted the central bank has been caught off guard by the spike in prices.

"We have been surprised [by] the upside on inflation. This is a lot of inflation in the US economy," said Bullard, who is a member of the Fed's rate-setting committee. "Our credibility is on the line here. We have to react to data. However, I think we can do it in a way that is organized and not disruptive to markets."

Bullard reiterated his concern that the central bank may not be moving fast enough in response to high inflation, and he repeated his view that the Fed should ramp up interest rates to 1% by July 1. That implies the Fed would need to raise interest rates by half a percentage point in one meeting — a step officials haven't resorted to since 2000.

"We have to reassure people we are going to defend our inflation target and we are going to get inflation back to 2%," Bullard said, noting that consumer prices soared in January by 7.5% from the year before.

Scrambled supply chains have been at the heart of the inflation spike and Bullard said his business contacts worry supply chain disruptions will last into 2023.

At the same time, the jobs market remains very strong. That raises questions about why the Fed still has interest rates at rock-bottom levels and is still buying billions of dollars in bonds to stimulate the economy. (The bond-buying program, known as quantitative easing or QE, is scheduled to end next month.)

Bullard pointed out that the number of job openings greatly exceeds the number of unemployed Americans. "From that perspective, we have one of the strongest labor markets we've ever seen," Bullard told CNBC. "I'm projecting the unemployment rate may go well below 3% this year. This could be one of the best in the post-war era."

The Russia-Ukraine crisis threatens to make inflation even worse by driving up oil and gasoline prices.

However, Bullard said he's not necessarily seeing the Russia-Ukraine tensions as a "leading macroeconomic issue, at least at this point."