February 1, 2022
By Ann Saphir
(Reuters) – St. Louis Federal Reserve President James Bullard on Tuesday said he favors lifting rates at the U.S. central bank’s meeting in March and likely again in May.
But he pushed back against the idea of kicking off the tightening cycle with a half-percentage point hike, and said that how high the Fed will ultimately need to lift rates is an “open question.”
“The point of this is to get (monetary policy) better positioned right now and in coming months, and then we will be able to assess, at that point, whether we need to do more or not,” Bullard told Reuters in an interview on Twitter Spaces.
As the Fed barrels toward the end of two years of near-zero rates, Bullard signaled there will likely be less guidance for investors ahead of time for the future path of rates.
“We are going to be have to be more nimble, faster, better at reacting to inflation data and other developments as we go through this year,” Bullard said. “It’s going to be a more data-dependent environment.”
Still, Bullard – one of 16 Fed policymakers setting interest rates for the country who for months has been cajoling his colleagues to take a more aggressive stance against soaring inflation – gave somewhat of a roadmap for what he expects on policy and the economy.
On trimming the Fed’s $9 trillion balance sheet, Bullard said he would like to get started in the second quarter and thinks “that the runoff can be faster than it was last time around.”
Raising rates and shrinking the balance sheet are both expected to raise borrowing costs and slow growth, putting downward pressure on what’s now 40-year-high inflation.
“We are cognizant of the inflation issue, we’re moving on the policy rate, but we’re also going to move on the balance sheet so we’re not that far from reaching neutral if you are willing to consider both of those,” Bullard said. If needed, he added, the Fed could use both levers to eventually put the brakes on the economy.
Meanwhile, he said, the U.S. unemployment rate – now at 3.9% – could plumb near-70-year lows.
“I think unemployment is going to go down below 3% this year,” Bullard said, noting that companies he talks to are doing well and scrounging for workers. “I think the upcoming jobs report will probably be not very good because of Omicron, but don’t be fooled. This is quite the strong economy here and a very strong labor market.”
(Reporting by Howard Schneider and Ann Saphir; Editing by Andrea Ricci)
