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Fed’s Bullard says his call for front-loaded rate hikes is not a ‘threat’ to economy, stock market

MarketWatch logo MarketWatch 2/15/2022 Greg Robb
© alastair pike/Agence France-Presse/Getty Images

The economic outlook, including the Federal Reserve’s rapid shift to a less easy policy stance, shouldn’t necessarily cause the stock markets to suffer, said St. Louis Fed President James Bullard on Monday.

Video: Fed ‘will back off’ if yield curve approaches an inversion: Strategist (Yahoo! Finance)

Bullard repeated that he would like the Fed to raise its policy rate by 100 basis points by July 1 to start the effort to bring down inflation.

“I think we can do it in a way that is organized and not disruptive to markets,” Bullard said, noting the Fed is only moving away from its ultra-easy policy stance and is not moving to contractionary policy.

Bullard said the stock and the Fed look at the same things.

“I’m really not seeing any threat to the market at this point,” he said.

Corporate earnings “will be just fine,” Bullard said. The economy is expected to grow at a 3.5%-4% annual rate this year, aided by the fading effect of the omicron variant. This will lead to a “second sort of reopening of the U.S. economy,” he said, in an interview on CNBC.

Bullard said the two-year Treasury note yield has risen substantially since last October. The Fed just has to ratify expectations, he said.

Asked if this meant a 50 basis point move in March, Bullard said he would defer to the leadership of Fed Chairman Jerome Powell.

“Maybe it does involve some repricing of the U.S. corporate sector. U.S. equities have been very strong through the pandemic… and I don’t see any reason that can’t continue during 2022 here, even if the Fed decides to front load some of the removal of accommodation that we’ve been previously considering,” he said.

Bullard said the last four consumer price inflation reports have indicated that inflation “is broadening and possibly accelerating.”

He said the 7.5% annual CPI reading in January is a number “that Alan Greenspan never saw” and the Fed’s credibility in on the line.

Talk of a quick Fed rate hike before the March 16 meeting, a popular discussion in markets late last week, appears to have faded over the weekend.

“I think my position is a good one, and I’ll try to convince my colleagues is a good one,” Bullard said.

Two of Bullard’s colleagues were more dovish.

In a separate interview on SiriusXM Business Radio on Monday, Richmond Fed President Tom Barkin tried to project calm.

He noted that the Fed said in January that it was ready to start to “normalize” policy and pointed listeners to the Fed’s next meeting on March 16.

“It is timely for us to normalize. Unemployment is low by historic standards, and the labor market is quite tight. Inflation is very high,” he said.

“Our next meeting is in March and before that we’ll get another labor report reading and another inflation reading. Of course, who knows what’s going to happen in the world at large, but I think it’s timely to get started and steadily move back toward pre-pandemic levels,” he said.

In an interview Sunday with CBS News “Face the Nation,” San Francisco Fed President Mary Daly said “abrupt and aggressive action” could be counterproductive.

“History tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we’re trying to achieve,” Daly said.

She said she was in favor of a moving in March and then watching and “taking the next interest rate increase when it seems the best place to do that.”

Stocks were lower in early trading Monday. The yield on the 10-year Treasury note moved higher after Bullard’s comments and is now up 4 basis points to 1.980%


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