St. Louis Federal Reserve President James Bullard said on Monday the central bank needs to hike interest rates quite a bit going further and hold them there throughout 2023 and into the year after to rein in inflation and bring it back towards the 2% goal, according to an interview with Market Watch.
Bullard observed that it seems markets are underestimating the degree to which the central bank will need to keep policy tight in order to rein in inflation. The official also pointed out there is some expectation that inflation might dip on its own.
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Interestingly, Bullard’s comments come just before Federal Reserve Chair Jerome Powell is scheduled to deliver a speech at an event on Wednesday hosted by the Brookings Institution in Washington. Powell is expected to cement expectations that the central bank will slow its pace of interest-rates hikes next month while asserting its fight against inflation will run into 2023.
Investors and traders are also eyeing the personal consumption expenditures and payrolls data scheduled to be released later this week. The SPDR S&P 500 ETF Trust SPY closed 1.6% lower on Monday while the Vanguard Total Bond Market Index Fund ETF BND closed 0.12% lower.
On Rate Hike: Bullard holds the view that inflation will be stickier than expectations, and it will likely take some time before it returns to the 2% target. “They will come down I think, that’s my baseline, but they probably won’t come down as fast as markets would like,” Bullard said, according to the report.
On the quantum of a rate hike in the next meeting, Bullard said although he believes “sooner is better,” the tactics would be upon the Federal Reserve Chair.
“Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation, but I would defer to the chair as to how he wants to play the tactics on this,” Bullard said.
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