Fed’s Bullard sees a change in 2023 at the end of previous rallies

(Bloomberg) – President James Bullard of the Federal Reserve Bank of St. when inflation cools.

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Bullard said Wednesday in a Bloomberg TV interview with Kathleen Hays of St.

The goal is to move to “some meaningful restraint” that will push inflation down. “But that doesn’t mean you go up forever,” he said.

The Federal Open Market Committee in September forecast a rate hike to 4.5%-4.75% next year, which Bullard said could put downward pressure on inflation. The Fed’s benchmark is currently within the target range of 3% to 3.25%.

The Fed is expected to raise interest rates by 75 basis points at its November 1-2 meeting – the fourth straight hike of that size – as central banks look to cool off the hottest inflation of the year. four decades. Investors are also betting that another rally of that size is likely in December, with markets seeing interest rates approach 5% next year to rein in prices.

While the committee has stepped up aggressively to try to catch up quickly with inflation near a four-decade high, Bullard said he looks forward to a shift to a more normal policy.

“In 2023, I think we will be closer to the point where we can run what I call conventional 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 when the data comes in 2023.”

Bullard said the November meeting outcome was “more or less priced in the market” with a 75 basis point increase, though he wants to wait until the meeting decides on the size of the move.

For December, he doesn’t want to “prejudice” what he will be advocating at that meeting, though he did echo comments from a few days ago that the Fed could pull the expected tightening.​ in 2022 from 2023, leaving the door open for a 75 basis point increase.

Bullard has been one of the most hawkish Fed officials this year and dissented at the March meeting in favor of larger rate hikes. He was the first to publicly propose a 75 basis point increase, which has become the norm this year as part of an inflation war.

Bullard said the policy committee could pause rates or make minor adjustments if there is bad data.

“It’s not like there won’t be any more adjustments, but they’ll be more based on incoming data rather than us trying to get past zero and up to a reasonable extent,” he said. Officials only started hiking in March and have since raised rates by 3 percentage points in the most rapid tightening campaign since the 1980s.

Core US consumer prices, which include 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 to be a worrying pattern for policymakers after the index also accelerated in August.

Fed officials have described the labor market as unhealthy tightening. Nonfarm payrolls rose 263,000 in September and the unemployment rate fell to 3.5%, matching a five-decade low.

Bullard said on Wednesday the housing market has felt the impact of the central bank’s rate hike, which has “changed the dynamics” in that sector.

Even so, Bullard said, the housing market is not representative of the economy as a whole. “It’s a big ship and it takes a while to navigate,” he said.

–With support from Craig Torres.

(Updated with comment on the 2023 outlook for rates starting in the first paragraph)

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