Federal Reserve Bank of St. Louis President James Bullard left open the possibility that the central bank would raise interest rates by 75 basis points at each of its next two meetings in November and December, while saying it was too soon to make that call.
The Fed hiked rates by 75 basis points for the third straight meeting last month, to a target range of 3% to 3.25%. Officials projected 125 basis points of tightening for the rest of the year, suggesting a 75 basis-point move in November and 50 basis points in December. A further 25 basis points of tightening was penciled in for 2023, according to their median estimate.
“Whether the committee would want to pull some proposed or thought-of policy-rate increases from 2023 into the December meeting, I think that’s a judgment that is premature to make,” he said Saturday in Washington during an event on the sidelines of the annual meeting of the International Monetary Fund and World Bank.
The US central bank is raising interest rates at the most rapid pace since the 1980s to curb inflation at 40-year highs. Investors now see a solid chance the Fed will raise rates 75 basis points in both November and December after data Thursday showed core consumer prices rising more than anticipated in September.
Projections released Sept. 21 by the Fed showed officials expecting rates to rise to 4.4% this year and 4.6% next, according to their median estimate.
Bullard said it probably didn’t make much difference from a macroeconomic perspective if that additional tightening happened later this year or in the first quarter of 2023. But he reminded the audience that he has been a fan of “frontloading” rate increases by rapidly moving policy to a level that restrains inflation, at which point officials can pause and take stock.
“You want to get where you need to be and then after you can react to data,” he said, adding that there was a “bullish case” for next year if declines in inflation forecast by both the central bank and private sector economists are proved correct.
“If that dynamic comes in it’s going to look very good, and we’ll be able to basically stay where we are and watch the inflation come down,” he said. “But there is a lot of risk also that inflation goes still higher and then we have to react to that.”
Bullard also backed continuing to shrink the central bank’s balance sheet at the current pace for some time.
“It is way too early to say that we would change this policy any time soon,” Bullard said during a panel discussion, in response to a question about whether the Fed would alter its balance-sheet runoff, currently at a pace of a maximum $95 billion a month.
Bullard votes on monetary policy this year and has been one of the more hawkish officials on its 19-member policy committee.
He said he’s glad that the Fed’s 75 basis-point rate increases hadn’t caused any significant market turmoil. “We’ve managed to get this far with relatively low financial stress,” Bullard said.
Responding to questions, he said moves in the dollar in response to Fed rate hikes were “not surprising.” The greenback has surged 16.4% in the 12 months, according to the Bloomberg Dollar Spot Index.
“It will not always be this way,” Bullard said. “If the Fed can get to a place where the committee thinks that we’re putting meaningful downward pressure on inflation with the level of the policy rate that we have,” and other central banks change their policies and perhaps become more aggressive, “you might see other movements in the dollar.”
