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The Federal Reserve could start to raise its benchmark interest rate as soon as March, St. Louis Fed President James Bullard said Thursday.
“The [Federal Open Market Committee] could begin increasing the policy rate as early as the March meeting in order to be in a better position to control inflation,” Bullard said in remarks to the CFA Society of St. Louis.
Bullard is a voting member of the Fed’s interest-rate setting committee this year. He was one of the first Fed officials in 2021 to advocate a pivot away from the easy policy stance adopted at the time of the COVID-19 pandemic recession.
While these easy policy settings largely remain intact today, at its meeting in December the Fed “shifted to more directly combat inflation pressures,” Bullard said.
At that meeting, the Fed accelerated the pace of its tapering of asset purchases so that the program will end in mid-March and the central bank penciled in three rate hikes this year.
The interest-rate market reflects a strong chance of a rate hike in March and also a good chance the central bank raises its benchmark rate four times in total in 2022.
Another possible step, Bullard said, would be for the Fed to start to passively shrink its $8.76 trillion balance sheet “in order to reduce monetary accommodation at an appropriate pace.” The St. Louis Fed president did not discuss when he would favor starting to shrink the balance sheet, which is called “quantitative tightening” by economists.
Markets
SPX,
reacted strongly on Wednesday to the minutes of the Fed’s December meeting, which drove home that Fed officials are now expecting to move more quickly to combat inflation. After starting the year around 1.5%, the yield on the 10-year Treasury note
TMUBMUSD10Y,
has risen to 1.725%.
The takeaway from the FOMC minutes was “faster, faster, faster, faster,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
