MNI: Fed's Bullard Wants March Hike, Warns of More Tightening

The Federal Reserve could start raising interest rates rates in March and potentially allow for some balance sheet runoff later in response to an inflation surge late last year, St. Louis Fed President James Bullard said Thursday.

“The FOMC 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 prepared remarks.

The Fed sped up its taper of QE in December and penciled in as many as three interest rate hikes for 2022.

“Subsequent rate increases during 2022 could be pulled forward or pushed back depending on inflation developments.”

IN FAVOUR

After minutes from the Fed's December meeting showed the start of a debate about balance sheet run-off potentially not long after the start of rate increases, Bullard indicated he would favor such a course of action.

“The FOMC is in good position to take additional steps as necessary to control inflation, including allowing passive balance sheet runoff, increasing the policy rate, and adjusting the timing and pace of subsequent policy rate increases,” Bullard said.

The Fed revised up its year-end 2022 forecast for inflation at the December meeting to 2.6% from 2.2%, but many economists still view that as overly optimistic. Fed policymakers are also becoming quite optimistic in their reading of the labor market as the jobless rate falls toward the 4% mark.