Like a junkie pleading for another fix, the financial markets tanked again last Friday after St. Louis Federal Reserve Bank President James Bullard told CNBC that he sees the Federal Reserve raising interest rates before the end of next year, a year or so before the Fed announced two days earlier that it plans to do so.
This is surely ironic since in the years following the 2008 financial crisis, Bullard was one of the most dovish members of the Fed, reliably arguing for monetary accommodation long after his fellow Fed members had moved on to raising interest rates. Now it appears that Bullard, based on his comments last week, has turned positively hawkish, at least compared to his Fed brethren.
"I put us starting in late 2022," Bullard said. "This is a bigger year than we were expecting, more inflation than we were expecting. I think it's natural that we've tilted a little bit more hawkish here to contain inflationary pressures."
By contrast, following the end of its June monetary policy meeting two days earlier, the Fed indicated that it doesn't expect to raise interest rates until the end of 2023. Yet that set off a selloff in the markets because it was more aggressive than its previous estimate in March when it said it didn't expect to raise rates until 2024 at the earliest.
The Fed's updated median outlook is now calling for up to two rate increases in 2023. According to the Fed's new "dot plot" projections, 13 of 18 Fed voting members expect to raise short-term rates by the end of 2023, up from seven in March. Back then, most members anticipated holding rates steady through 2023.
Bullard isn't currently a voting member of the Fed's monetary policy committee, but he will be next year. Continue reading "Is The Market Overreacting?"
