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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

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