Fed's Bullard: Fed needs to follow through on rate-hike promises
Continuing his hawkish stance on inflation, outspoken Federal Reserve official James Bullard said Wednesday that the Fed needs to "follow through" on its promise to raise interest rates or "risk squandering policy creditability."
Delivering a presentation to a local organization called Greater St. Louis, Inc., the president of the St. Louis Federal Reserve Bank added that the U.S. economy has more than fully recovered from the pandemic, allowing for the "rapid withdrawal" of the stimulus it put in place to fight the COVID slowdown.
Bullard's comments followed a general feeling in financial markets that Russia's invasion of Ukraine could slow the central bank's plans to aggressively raise interest rates. Bullard has vocally supported a stepped-up pace of rate hikes in order to get inflation under control.
According to the CME's FedWatch tool, the probability of a half-point rate hike at the Fed's meeting later this month stood at 41% early last week and had gotten to levels above 90% early in February. This expectation that the central bank would dramatically ratchet up rates came as markets predicted aggressive action to tamp down inflation, which has reached multi-decade highs.
However, since Russia's invasion of Ukraine, the odds that the Fed would pursue a half-point hike have plummeted. The FedWatch tool now handicaps the chances of a 50-basis-point hike at less than 10%. Meanwhile, a quarter-point hike sits at nearly a 90% probability.
Even as market participants expect a slower rate-hiking campaign from the Fed, Bullard suggested that policymakers might have to accelerate their efforts if inflation continues to push higher.
"The FOMC may have to move more aggressively going forward if inflation increases or does not moderate as much as expected," he noted in his presentation.
"Forthright and transparent actions designed to keep inflation under control will give the U.S. economy the best possible chance at a long and durable expansion," Bullard added.
For more on the likely course of monetary policy, see why Fed Chair Jerome Powell believes the central bank has to remain "nimble" as the economy changes.