A number of Federal Reserve employees, publicly and privately, are resisting calls from St. Louis Fed President Jim Bullard Thursday to increase rates by a lot. They suggest instead that the central banking will take a much more cautious approach.
These comments may suggest that markets have incorrectly misinterpreted Bullard’s remarks. They might believe they were more widely held by Fed officials than they actually are.
Raphael Bostic, Atlanta Fed president, stated to CNBC that his views had not changed following the inflation report. He said, on Thursday, “My opinions haven’t changed” in support of three or four rate increases this year. This would likely start with a 25-basis point increase. It was the same opinion. he gave CNBC on WednesdayThe inflation report was not yet published. (One basis point equals 0.01%.)
Following the publication of the consumer price index rose 7.5% year over year, a fresh 40-year high, Bullard told BloombergHe wanted 100 basis points of tightening to be “in the bag”, by July. This includes a possibility of a rate increase of 50 basis points and possibly an intermeeting move.
Bullard’s comment caused stocks to drop sharply and bonds yields rose. Stocks had previously shrugged off the inflation report. Bullard’s comments triggered a 25-basis point increase in the yield on the 2-year bond. This is the largest single day rise since 2009. The March 50 basis point increase was almost certain, although Bullard said that he wasn’t sure.
In a speech later that day, Richmond Fed President Tom Barkin stated that he needed to “be convinced” that a rate increase of 50 basis points was necessary. He said that there might be a moment for it, but that this time did not seem to be the right one.
Mary Daly, San Francisco Fed President, stated after receiving the inflation report that she does not prefer a 50 basis-point increase.
CNBC’s reporting revealed that Fed officials already expected a poor inflation figure, and that January’s report wasn’t significantly worse than anticipated. Midyear improvement is unlikely. Only then, if the inflation rate continues to rise and doesn’t respond to plans to reduce balance sheets, will these Fed officials consider accelerating tightening.
It is about five more weeks until the March meeting. There will be an inflation report. The situation could also change. Even after the inflation report, officials remain firm in their belief that there will be a moderate tightening.