St Louis Fed President and 2022 voting FOMC member James Bullard on Monday reiterated his call for 100bps in interest rate hikes by July 1, citing the last four inflation reports which show broadening inflationary pressures. The Fed's credibility is on the line, he continued, saying that the Fed needs to reassure the public that it is going to defend its 2.0% inflation target. Inflation reports since October have called into question the idea that price increases will moderate without Fed action, Bullard said, before cautioning that the Fed needs to act in a way that is not disruptive to markets. The timing of rate hikes would ultimately be up to Fed Chair Jerome Powell, Bullard added, though he did say that he thought his plan was a good one and now would try to persuade his colleagues.
The Fed will be in "a pickle" if inflation does not moderate as expected in the second half of the year, Bullard warned, adding that the bank needs to position for that eventuality now. Bullard noted that he would like to see the yield curve steepen from reducing the size of the Fed's balance sheet, a process he would like to kick off with passive run-off in Q2, with a "plan B" of asset sales if needed.
Market Reaction
Currency markets have not reacted to the latest remarks from Bullard, which were broadly in line with his hawkish post-hot US CPI data comments last week.
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