Federal Reserve Bank of St. Louis President James Bullard says he has become more supportive of a third straight 75 basis-point interest rate increase and Wall Street is underestimating the likelihood that the Fed will hold rates at higher levels next year.
‘’I was leaning toward 75 and the jobs report was reasonably good last Friday,” Bullard said in a Bloomberg News interview late Thursday in St. Louis.
While the consumer price index may show progress when it’s reported next week, “I wouldn’t let one data point sort of dictate what we are going to do at this meeting. So I am leaning more strongly toward 75 at this point.”
Officials meet Sept. 20-21 and investors are fully expecting another jumbo move, following 75 basis-point increases in June and July, after Chair Jerome Powell on Thursday stressed they will not flinch in the battle to curb to curb inflation that’s running close to a 40-year high.
Those comments reinforced his Aug. 26 message at the Fed’s annual retreat in Jackson Hole, Wyoming, which pushed back on doubts the Fed has the resolve to inflict pain on Americans by slowing the economy so that unemployment rises.
He has been backed up by a number of other officials from both the dovish and hawkish wings of the U.S. central bank, which is where Bullard sits.
‘’The general strategy of trying to front-load these rate increases is working well and putting us in a position where we can have a level of the policy rate that is putting downward pressure on inflation very soon,” the St. Louis chief said. “And sooner tends to be better in my mind.”
Bullard votes on monetary policy this year.
Bullard repeated that he favored getting the Fed’s target rate to 3.75% to 4% by year’s end and hasn’t decided what rate path he would prefer for 2023.
But he said markets’ pricing of potential rate cuts in the second half of 2023 may be misjudging how sticky high inflation is and the Fed’s commitment to lower it to its 2% target.
“I have felt Wall Street is underpricing the idea that inflation may just be relatively high and it may take quite a while to bring back to 2%,” Bullard said.
“This would mean interest rates have to be higher for longer. That’s a scenario that is not garnering enough attention in today’s market pricing.”
U.S. central bankers are raising interest rates rapidly after being slow to respond when price pressures started to get out of hand. Powell has kept the option open for another 75 basis-point move this month and has said the decision depends on the “totality” of the incoming data.
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