WASHINGTON (Reuters) – St. Louis Federal Reserve chairman James Bullard on Friday said he was among seven Fed officials forecasting rate hikes next year to contain higher-than-expected inflation and which will prove, according to him, more durable.
“The pandemic is coming to an end, so it is only natural to figure out how to reduce emergency measures,” James Bullard said in a CNBC interview.
The American central bank surprised the markets on Wednesday by announcing that it was now counting on a first hike in interest rates as of 2023 and that it had started the debate on the coming reduction of its bond purchases in the markets.
“We were expecting a good year, a good recovery in activity, but it is a more solid year than we expected, with more inflation than expected, and I think it is natural that we have looked a little more on the side of the ‘hawks’ to contain inflationary pressures, “explained James Bullard.
New projections from Fed interest rate officials, the “dot plots”, show that 11 out of 18 are now forecasting at least two quarter-point rate hikes in 2023, even if they undertake to maintain support measures for the moment in order to encourage the recovery of the labor market.
James Bullard said he was one of seven Fed officials who see a first rate hike next year, and more specifically from the end of 2022.
He estimates inflation could reach as high as 3% this year, excluding the volatile food and energy categories, and then remain 2.5% in 2022, exceeding the Fed’s 2% target.
His intervention led to a sharp drop in Wall Street and European stock futures contracts while the yield on the 10-year Treasury bill temporarily wiped out its losses and the “dollar index” climbed.
(Howard Schneider, French version Laetitia Volga, said by Sophie Louet)
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