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St. Louis Fed President says Fed should have a 100 point rate hike
| twisted house-broken hairy legs | 02/17/22 |
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Date: February 17th, 2022 1:01 PM Author: twisted house-broken hairy legs https://seekingalpha.com/news/3801539-fed-should-front-load-removal-of-policy-accommodation-bullard-says
Fed's James Bullard says removing policy accommodation isn't tightening (updated) Feb. 17, 2022 12:12 PM ETBy: Liz Kiesche, SA News Editor
"It's incumbent upon us to get off the pandemic-era [monetary policy] settings. I’ve said that the best response to the situation is to front-load the removal of the accommodation," St. Louis Fed President James Bullard said during panel discussion at a Columbia University event.
Bullard said he has proposed raising the federal funds rate by 100 basis points by July 1. The fed funds target range is now at 0.0%-0.25%.
Given higher-than-expected inflation and the strong labor market, "the Fed should move faster and more aggressively than it would in other circumstances. We’re just getting off of the very lowest policy settings," Bullard said.
He doesn't see much risk that the moves will trigger a recession, arguing that the expected rate increase and tapering of asset purchases isn't tightening. "This is just the starting point of the normalization process," Bullard said.
"We're not close to neutral," he said. He estimates the neutral rate to be about 2%; a neutral policy rate means that it's neither boosting the economy nor hindering it.
Update at 11:48 AM ET: With the Fed's net asset purchases of Treasurys and mortgage-backed securities set to end in early March, the next step is to shrink the central bank's balance sheet. He prefers that the Fed "just allow natural runoff of the balance sheet," meaning the bank allows the securities to mature without reinvesting.
If inflation doesn't subside as the policymakers expect, then the Federal Open Market Committee should have a Plan B, under which it would sell assets, Bullard said.
12:01 PM ET: "I want to play the balance sheet card as soon as we can," he said.
12:12 PM ET: The committee still needs to decide on the details for reducing the balance sheet, he said, declining to give any specific scenarios on the timing.
He emphasized that it's important for the central bank to preplan for other scenarios than its base case. "Credibility is at risk. Sure, there's expectation that inflation will come down, but what if it doesn't?"
"I would like to have other cards to play at this moment," Bullard said.
Event ends at 12:23 PM ET.
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