“So far so good. But we have to be nimble here, these are big numbers.”
By Wolf Richter for WOLF STREET.
One of the big Fed doves, St. Louis Fed President James Bullard, is making “hawkish” noises, projecting higher inflation and pulling the first rate hike into 2022, after the Fed pulled the first two rate hikes into 2023 on Wednesday, from 2024 back in March. Things are tightening up quickly here. It’s when the doves turn “hawkish,” as it were, that things get real at this Fed.
The “hawks” – in reality, there are no hawks on this Fed, there are only folks who are more or less dovish – have already spoken, and no one paid attention. For example, over a month ago, Dallas Fed President Robert Kaplan once again pointed at surging inflation and all kinds of distortions, including in the housing market, and advocated for tapering purchases of mortgage backed securities, “sooner rather than later.” At the time, he was the odd man out.
But dove Bullard got everyone’s attention today. The Fed and Chair Powell already jostled some nerves on Wednesday with their inflation concerns, and with revelations that, one, there had been an official “discussion” about how and when to taper asset purchases, and that the phrase “talking about talking about tapering should be retired,” as Powell said, and that, two, it has pulled its median projections for the first two rate hikes into 2023, from 2024.
Bullard normally gets trotted out on the financial TV channels when markets sag, and gets to make dovish statements that then end the sag. But today was a little different.
Bullard, who will be in a voting slot at the FOMC in 2022, told CNBC this morning that the FOMC “has been surprised to the upside over the last six months,” in terms of GDP growth, the labor market, and inflation.
“We were expecting a good year, a good reopening. But this is a bigger year than we were expecting, more inflation than we were expecting, and I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures,” he told CNBC.
“The inflationary impulse is more intense than we were expecting,” he said. “The 3% on core PCE inflation, how long has it been since we’ve seen that! There is some upside risk to that, with more reopening to occur in the second half of the year.”
“So I think you could even see some upside risks to the inflation forecast. But that’s OK, we were targeting to get inflation up above target. I think we’re going to achieve that in 2021 and 2022, and we’ll approach 2% inflation from the high side, and I think that will be a good path for the US economy, and that will help cement longer-run inflation expectations at 2%.
“So far so good, but we have to be nimble here, these are big numbers,” he said.
These are truly big numbers. Over the past three months, inflation has surged at the red-hottest pace since the early 1980s.
Bullard’s own inflation…
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