Bullard: Market Underpricing Risk That FOMC Is More Aggressive

Heading into the interview with a terminal Fed rate priced around 5%, here are the key Bloomberg headlines from St Louis Fed’s Bullard (’22 voter) speaking with MarketWatch:

• Rates
  • He reiterates that the FOMC needs to get to the bottom end of 5-7% rate range, with the Fed having to pursue rate hikes into 2023.
  • The markets are underpricing the risk the FOMC may be more aggressive as a way to go to get restrictive rates with the Fed may have to keep rates higher through 2023 and into 2024.
• Growth
  • Q4 US GDP estimates are trending positive, sees below-trend US growth in 2023 but doesn’t think a recession is inevitable.
  • Housing market getting to more balanced growth path
• Inflation
  • Not a big believer in wage-price spiral
  • TIPS-market expectations in reasonable range right now
  • Goal is to have 2023 as year for US disinflation - labour market strength gives license to pursue disinflation