ST. LOUIS–Federal Reserve Bank of St. Louis President James Bullard said he would like to see the Fed’s benchmark rate increased to at least 3% by year-end 2022 to counter the highest inflation in four decades.
Bullard also said he favors shrinking the Fed’s bloated balance sheet.
“I would like the committee to get to 3-3.25% on the policy rate in the second half of this year,” Bullard told reporters after a speech at the University of Missouri, Bloomberg reported. “We have to move forthrightly in order to get the policy rate to the right level to deal with the inflation we have got in front of us.”
As CUToday.info reported, the Fed raised its benchmark overnight rate by 25 basis points last month to a target range of 0.25% to 0.5%. Bullard, who favored a half-point increase, was the lone dissenter in the 8-1 policy vote.
Bloomberg noted forecasts released with their policy decision showed officials expect to raise rates to 1.9% by the end of the year, according to the median estimate. Two Fed bank presidents -- Chicago’s Charles Evans and Atlanta’s Raphael Bostic -- voiced support for increases that were more in line with the path laid out by those projections, or dot plot.
According to Bloomberg, Bullard said he didn’t want to prejudge the May meeting and will consider new data, “but obviously I was in favor of going with a bigger rate increase last time, so I would lean into that this time.”
What the Minutes State
Minutes of the March 15-16 policy meeting released last week showed that “many” officials had been of the same mind and only backed the smaller increase out of caution in light of Russia’s invasion of Ukraine. The minutes also showed that many of them also noted that one or more half-point hikes could be appropriate going forward to counter the hottest inflation in four decades, Bloomberg added.
The minutes outlined a plan by the Fed to shrink its nearly $9 trillion balance sheet by more than $1 trillion a year, which would also contribute to tighter financial conditions. Some Fed officials have equated that process to one or more rate increases. Bullard said the securities runoff is well understood by markets and isn’t a reason for the Fed not to raise by 50 basis points in May, according to Bloomberg.
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