(The Center Square) – Growth in the nation’s gross domestic product during the last half of 2022 shows the raising of interest rates to control inflation didn’t harm the economy, according to the leader of the Federal Reserve Bank of St. Louis.

James Bullard, president of the Federal Reserve Bank of St. Louis, provided several other positive data points leading to prospects of 2023 being a good economic year. However, he said the Fed must continue to monitor inflation and react by appropriately raising or lowering interest rates.

After negative growth in the first half of 2022, the GDP returned to positive territory in the third quarter, and fourth quarter projections show a 4% annual rate of growth during the period, Bullard said during a recent presentation to the Wisconsin Bankers Association.

“You might recall that only a few months ago, some were predicting that the fourth quarter would be a negative quarter for the U.S. economy, in part due to aggressive monetary policy by the Fed,” Bullard said. “That’s turning out not to be the case.”

Bullard said an above-trend annual growth rate of approximately 2% aligns with the strong labor market.

“This sort of solves a puzzle that had previously been vexing many of you and me as well,” Bullard said.

He said there are 1.7 job openings for every unemployed worker in the U.S. and a high rate of people quitting jobs, showing employees are confident they can quickly and easily find work.

“It’s hard to see how unemployment is going to go up if there are that many job openings for a worker that gets disrupted,” Bullard said.

Federal COVID-19 funds continue to support households and state and local governments. Evidence for this is the level of high bank deposits.

“I think this is partly because households have not completely spent the COVID dollars they got during the response to the COVID crisis,” Bullard said. “So, they’re spending that down, but they certainly have a cushion that should support consumption spending going forward through the first half and all of 2023. Also, state and local governments seem to be relatively flush with cash from COVID dollars and tax receipts. I don’t think those entities have been able to spend the resources that they have and I’ve heard a lot of comments from many of you that it’s probably that.”

Bullard expects inflation to move downward toward the Fed’s 2% target. He said communicating rate increases with various markets resulted in some interest rates rising before Fed announcements of increases.

“We don’t want to replay the 1970s,” Bullard said. “We want to make sure we’re moving inflation clearly back to 2% and that means the Fed is going to have to maintain rates at high enough levels to make sure inflation is moving down and staying down on a consistent basis.”

Bullard warned of the possibility of persistent high or rising inflation rates. However, he said the data shows 2023 will be a year of disinflation.

“There’s probably too much optimism that inflation is easily going to come back to 2%,” Bullard said. “That is not the history of inflation. But we can still be hopeful and I do think our policy has been successful. So far, so good.”