UPDATE 1-Fed's Bullard says high rates raise risk of recession

WASHINGTON Reuters - Rapid U.S. interest rate increases have raised the risk of a recession, but it's likely that it will be caused by an outside shock rather than a collapse of a U.S. economy that remains resilient, said James Bullard, St. Louis Fed president.

Bullard said at an economic forum in London that if you go between buildings on the high wire, you're worried about a big gust of wind coming up, referring to the path that the Fed is trying to walk between the U.S. inflation without triggering a serious downturn.

He said that with strong U.S. job growth and strong household balance sheets, talk about the recession story should be more on a global basis than a U.S. basis, with the possibility of Europe and China pulling the rest of the world into a downturn.

Bullard, who has been among the most hawkish of Fed policymakers in favor of faster and larger rate increases, now thinks Fed plans to raise the target policy rate to around 4.5% by the end of the year, which will slow the economy and ease inflation.

Bullard said that the high rates will have to be maintained for a long time, a fact that has resulted in a fast refricing of financial assets in recent weeks and has raised concerns that Fed policy is heightening the risks for the global economy.

Bullard said that they did internalize the spillover effects of Fed policy. He said that he was focused on how events in other countries influence forecasts for the U.S. economy.