(Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said he expects the central bank to end its ‘’front-loading” of aggressive interest-rate hikes by early next year and shift to keeping policy sufficiently restrictive with small adjustments as inflation cools.
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“You do have to think about what the reasonable level is,” Bullard said Wednesday in a Bloomberg TV interview with Kathleen Hays in St. Louis, suggesting that he doesn’t currently see the need to push rates higher than officials have already projected.
The goal is to move to “some meaningfully restrictive level” that will push inflation down. “But it doesn’t mean that you go up forever,” he said.
The Federal Open Market Committee in September forecast raising rates to 4.5%-4.75% next year, which Bullard said could put downward pressure on inflation. The Fed’s benchmark is currently in a target range of 3% to 3.25%.
The Fed is expected to raise interest rates by 75 basis points at its Nov. 1-2 meeting — its fourth straight increase of that size — as central bankers seek to cool the hottest inflation in four decades. Investors also bet that another increase of that size is likely in December, with markets seeing rates approaching 5% next year to curb prices.
While the committee has been “front-loading” aggressive hikes to try to catch up quickly with inflation near a four-decade high, Bullard said he’s looking forward to switch to a more normal policy.
“In 2023 I think we’ll be closer to the point where we can run what I would call ordinary monetary policy,” he said. “Now you’re at the right level of the policy rate, you’re putting downward pressure on inflation, but you can adjust as the data come in in 2023.”
Bullard said the November meeting result “has been more or less priced in to markets” for a 75 basis-point hike, though he’d prefer to wait until the meeting to decide his preference for the size of the move.
As for December, he didn’t want to “prejudge” what he would support at that meeting, though he did reiterate comments from a few days ago that the Fed could pull anticipated tightening into 2022 from 2023, leaving open the possibility of a 75 basis-point hike.
Bullard has been among the most hawkish Fed officials this year and dissented at the March meeting in favor of a larger rate hike. He was the first to publicly suggest hikes of 75 basis points, which have become routine this year as part of the inflation fight.
Once a restrictive rate is achieved that puts pressure on prices, Bullard said the policy committee could pause rates or make small adjustments upward if the data come in badly.
“Not that there wouldn’t be further adjustments, but they would be more based on the data coming in as opposed to us trying to get off zero and up to some level that’s reasonable,” he said. Officials only started hiking in March and have since raised rates by three percentage points in the most rapid tightening campaign since the 1980s.
US core consumer prices, which strip out food and energy, rose 6.6% in September from a year ago, the fastest since 1982, according to a Labor Department report last week. That continues a worrying pattern for policymakers after the gauge accelerated in August as well.
Fed officials have described the labor market as tight to an unhealthy degree. Nonfarm payrolls increased 263,000 in September and the unemployment rate dropped to 3.5%, matching a five-decade low.
Bullard said Wednesday the housing market has been feeling the impact of the central bank’s interest-rate hikes, which have “changed the dynamics” in that sector.
Even so, the housing market doesn’t represent the whole economy, Bullard said. “It is a big ship and it takes a while to steer the ship,” he said.
–With assistance from Craig Torres.
(Updates with comments on 2023 outlook for rates starting in first paragraph)
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