By Michael S. Derby 

St. Louis Fed President James Bullard said Thursday that unexpectedly strong economic performance had so far provided some justification for central bank rate rises that he had long argued against.

While Mr. Bullard has long opposed raising rates, he said he has been willing to go along with the rate rises because events in the economy have so far given officials a reason to boost the cost of short-term borrowing.

"We are in great shape right now" in the economy, Mr. Bullard told reporters after a speech in Memphis, Tenn. But he cautioned that just because the economy's performance has beaten forecasts, it doesn't mean the Fed should tell markets more increases are coming.

"The idea we have to pencil in a lot of rate increases, that's what I'm objecting to," Mr. Bullard said. He added that the Fed had essentially followed through on the rate-rise path it penciled in in the spring of 2017, and that the economy had "rationalized" that projection.

Mr. Bullard, who isn't currently a voting member of the interest-rate-setting Federal Open Market Committee, has opposed Fed rate rises for several years, arguing that the economy was in an extended period of modest growth and tepid inflation pressures. But his colleagues have largely disagreed with this view.

In late September, the Federal Open Market Committee boosted its overnight target rate for a third time this year. It is expected to act again in December and press forward with more increases in 2019. Most on the FOMC think rate rises are needed to keep the economy from overheating.

In his talk with reporters, Mr. Bullard said that he isn't seeing much to worry him on the inflation front and that he would be OK with the Fed modestly overshooting its 2% inflation target.

He said if the economy continued to grow at a 2.5% to 3% pace in 2019 and 2020, it was possible that forecasters would need to raise their view of the economy's potential growth rate. However, he said he needed to see higher productivity rates before he could support boosting his estimate of potential growth.

In his prepared remarks, Mr. Bullard said a modernized way of looking at a venerable monetary-policy rule supported his belief that no rate rises were needed right now.

Mr. Bullard said the Taylor Rule, which suggests a level for Fed short-term rates based on how the economy is performing, can be updated in a way that takes greater account of inflation-expectations data and the labor market's reduced impact on price pressures.

"Incorporating these developments" creates a new Taylor Rule "that suggests maintaining the current level of the policy rate would be an appropriate policy over the forecast horizon," Mr. Bullard said.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

October 18, 2018 11:45 ET (15:45 GMT)