MNI: Bullard Says CPI Vindicates Fed Front-Loading Strategy

St. Louis Fed President James Bullard said Saturday the stronger-than-expected CPI report released last week vindicates the central bank's front-loading strategy of raising rates in supersized moves, arguing that a new disinflationary dynamic could take hold later this year so that the central bank reaches 2% in relatively short order.

"We have a very serious inflation problem,'" he said at a monetary policy panel on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington. But the "front loading strategy is the right one," he said, adding that the central bank’s aggressive interest-rate hikes so far have made relatively small waves in financial markets.

While he is hearing more from his contacts about liquidity issues and is attuned to the issue, Bullard said it is still early days and "way too early" to say the central bank would change its QT plans anytime soon. "I would like it to be in place for some time," he said about QT.

2023 DATA DEPENDENCE

The St. Louis Fed president said "2022 is the year of frontloading but 2023 would be the year of data-dependence or ordinary monetary policy at this newer, higher level of the policy rate." Bullard said the Fed will be reacting to data in 2023, with possibly higher or possibly lower rates, and said it is too soon to say whether the Fed will need to pull forward tightening into December with another 75 basis point rate hike, while expressing support for another 125 basis points of hikes this year.

"There is a bullish case to be made for 2023," he said, still noting the risk that inflation could come in higher. (See: MNI INTERVIEW: Entrenched U.S. Inflation To Linger-Fed's Meyer)

Fed policy "has produced a stronger currency," Bullard said. That may ease once the Fed gets rates to a place "where the committee thinks we're putting meaningful downward pressure on inflation," so rates don't need to continue rising, he said.