The president of the St. Louis Federal Reserve, James Bullard, returns to urge strong action by the US central bank to fight inflation. “The Fed has to move aggressively to keep inflation in check,” Bullard said in an interview with Bloomberg Television. Last week Bullard, one of the most avid hawks in the Fed, has set a target rate of 3% at the end of the year. “We need to at least get to neutral so that we don’t put upward pressure on inflation during this time when we have much higher inflation than we are used to in the US.” The ‘neutral rate’ cited by Bullard is the level that neither stimulates nor slows down inflation. Bullard estimates this neutral rate at 2%, while his colleagues’ median places it at around 2.4%.
Bullard was the only FOMC member to dissociate himself from voting in favor of a 25bp rate hike at the March meeting. Bullard wanted a 50bps hike as the Fed’s balance sheet begins to shrink.
Federal Reserve Chairman Jerome Powell made it clear yesterday that inflation in the United States is too high and that monetary tightening of more than 25 basis points may be required in one meeting or at multiple meetings. Words that reinforced investors’ belief that the upcoming Fed meeting in May marks a US rate hike of 50 basis points, after the first hike since 2018 announced on March 16, equal to 25 basis points, which led to the cost of borrowing. at the range between 0.25% and 0.50%.
Goldman sees two consecutive heavy hikes
Goldman Sachs revised US rate forecasts upward, estimating two 50bp monetary tightenings in the next two meetings of the Fed’s monetary policy arm, in May and June, followed by 25bp hikes at the remaining four meetings. in the second half of 2022 and three quarterly hikes in 2023. At the end of the cycle, rates are expected by Goldman at 3-3.25%. “We continue to expect the FOMC to announce the start of the budget cut at the May meeting, but after the latest comments we don’t believe this is necessarily an obstacle to achieving a 50bp increase in May as well,” explains the house. US business.
Bullard cheers for a replay of what Greenspan did in 1994
What does Bullard mean by as fast as possible? The banker makes a precise reference to what the Fed did during the 1994 tightening cycle, calling it the best analogy to the current situation. From February 1994 to early 1995, the Fed led by Alan Greenspan raised rates from 3% to 6% and achieved a “soft landing” for the economy with contained inflation without compromising growth and favoring expansion. of 10 years.
In 12 months, the Greenspan Fed raised rates by as much as 300 basis points following a path that is anything but linear: three increases of 25 basis points, then two of 50, one of 75 and a finishing move of 50. Total 300bps with rates jumped from 3 to 6%.