St. Louis Federal Reserve President James Bullard cautioned that inflation could become an even more serious problem without action on interest rates. “We’re at more risk now than we’ve been in a generation that this could get out of control,” he said.
James Bullard made his statement last week that he was open to a 50bps rate hike in March and a full percentage point by July.
According to Reuters poll, the market expects the U.S. central bank to kick off its rate hike with a 25bps hike, but a growing minority say it will opt for a more aggressive 50bps move to tamp down inflation. The market sees fed funds rate to finish the year at 1.25-1.50%.
U.S. consumer price index jumped by 7.5% in January, higher than the forecast of 7.3% by economists, while representing the fastest pace since 1982. A rise in inflation not only pressures the Fed to raise interest rates, but also to reduce its nearly $9 trillion balance sheet as well.
JPMorgan said earlier that the firm did not see recent Fed rhetoric as advocating a 50bp hike in March, adding that while James Bullard had made his case, the Fed press corps are pushing back against the St. Louis’ chief.
Moreover, JPMorgan said that the Fed does not have to validate market expectations of 50bp, should that persist going into the March meeting.
Following the Fed’s meeting on Wednesday, JPMorgan revised its Fed expectations in 2022 by removing two previous-expected pauses to now look for seven hikes this year, up from five in the prior outlook, while thinking a 50bp rate hike is unlikely to occur. JPMorgan expected three more hikes next year.
