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Fed, split over opening rate bid, may put weight on February data

Economy Feb 14, 2022 12:11PM ET
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2/2 © Reuters. FILE PHOTO: St. Louis Fed President James Bullard speaks about the U.S. economy during an interview in New York February 26, 2015. REUTERS/Lucas Jackson/File Photo 2/2
 
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By Howard Schneider

WASHINGTON (Reuters) -U.S. Federal Reserve officials continued sparring over how aggressively to begin upcoming interest rate increases at their March meeting, with a final inflation reading just ahead of the two-day session taking on potentially outsized importance.

St. Louis Federal Reserve President James Bullard on Monday reiterated calls for a faster pace of Fed interest rate hikes, saying that four strong inflation reports in a row warranted more aggressive action and that the central bank needed to "ratify" market expectations about its upcoming moves.

Bullard, who himself helped shape those expectations with calls last week for a 50 basis point increase at the Fed's March meeting, said on CNBC that the Fed's "credibility is on the line" in its quest to bring inflation down from the current 40-year high of more than 7%.

"It was really October, November, December, January that called into question any idea that this inflation was naturally going to moderate in any reasonable time frame without the Fed taking action," said Bullard, again calling for a full percentage point of Fed rate increases by July 1. That implies at least one hike of a half percentage point at one of the three meetings between now and then instead of the quarter point increases that the Fed has used in recent years.

As he spoke bond yields again rose and recent market volatility continued. The 10-year Treasury rose back above 2%, and the Dow Jones industrial average fell more than 200 points by late morning.

Other Fed officials have been less willing to commit to a half-point hike, or were even concerned it could cause trouble.

In an interview on SiriusXM radio Richmond Fed President Thomas Barkin said it was "timely" to begin raising interest rates but said the specifics will depend on how inflation moves in upcoming reports.

“Will it settle back down to levels more like the levels we have seen over the last 30 years or will it not settle?” Barkin said. “Depending on the answer you could adjust your pace or your timing.”

Kansas City Fed President Esther George said in a Wall Street Journal interview that she wanted a "systematic" plan to tighten monetary policy, but was not convinced it needed to start with a 50 basis point increase.

“It is always preferable to go gradual," George said. "Given where we are, the uncertainties around the pandemic effects and other things, I’d be hard-pressed to say we have got to get to neutral really fast,” an aim that would dictate larger and more frequent rate increases.

On Sunday, San Francisco Fed President Mary Daly said if the Fed is too "abrupt and aggressive" it could "have a destabilizing effect on the very growth and price stability that we're trying to achieve."

Daly told CBS' "Face the Nation" that after raising rates in March the Fed could even consider pausing at its next meeting to evaluate the economy, a contrast to the steady increases Bullard feels will be appropriate at the Fed's March, May and June sessions.

STAYING NIMBLE

With the Fed promising what it calls a "nimble" approach to policy after so many pandemic-era surprises, the ultimate decision may rest on the details of the final consumer inflation report, due on March 10, that the central bank will receive ahead of its meeting on the 15th and 16th of the month.

That report will show whether, as some Fed officials say they hope and expect, the month-to-month change in prices is easing, something several have said would allow them to tighten policy at a slower pace.

None of the Fed's governors, and most notably Fed Chair Jerome Powell, have spoken publicly to the matter since the central bank's last meeting in January.

Bullard said he would defer to Powell on the sequencing of coming rate increases. But he also said the Fed at this point needed to "follow through" on what markets anticipate, and in effect lock in the tighter financial conditions seen for example in rising interest rates for two-year Treasury notes.

Powell is "very good at managing the committee," Bullard said. But "the Fed has to follow through and ratify those expectations that have been built into the two year, and if we don't then it makes it appear that we are not defending" the 2% inflation target. Since the Fed began planning tighter monetary policy last fall the yield on the two-year note has risen from near zero to 1.6% as of Monday morning, roughly where it was before the pandemic.

"I think my position is a good one and I will try to convince my colleagues," said Bullard, a voting member on Fed policy this year.

Fed, split over opening rate bid, may put weight on February data
 

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Comments (25)
William Bailey
William Bailey Feb 14, 2022 6:14PM ET
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Speed it up before the economy and banking system collapse
Abidullah Abid
Abidullah Abid Feb 14, 2022 2:53PM ET
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abidullahabid
Shep De
Shep De Feb 14, 2022 2:33PM ET
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Agreed, with Bullard, and not alone is he, at last FOMC Powell did not deny "a half point" rate hike question from media/analysts post last meeting end Jan. A lot's happened since then though, extraordinarily higher jobs #, 1185K when revisions Nov. & Dec. factored; NFP est. was 150K & 479K + 709 REV is inflationary disastrous added to housing hot data Feb., into spring, + vehicle sales outrageous, 15.5M, & called for 11.9M. Consumer 160 trillion AND SPENDING
Shiva Shankar
Shiva Shankar Feb 14, 2022 2:16PM ET
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russia invade ukraine after Valentine
Dee Mehta
DMFINANCE Feb 14, 2022 2:03PM ET
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Negative rates are coming to us mainland
Shawn SMK
Shawn SMK Feb 14, 2022 1:57PM ET
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Looks like Bullard has lots of shorting stocks interest
Jose Cabreja
Jose Cabreja Feb 14, 2022 12:56PM ET
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Fed never had credibility..Politicians don't say much against then bc they know what could happen.
Tyrone Jackson
Tyrone Jackson Feb 14, 2022 12:50PM ET
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Why the EMERGENCY MEETING TODAY?? That is the news. Report it
Jose Cabreja
Jose Cabreja Feb 14, 2022 12:50PM ET
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no..it was a closed meeting..probably on Wednesday we get some [PUTS] news about it 🤣
Tyrone Jackson
Tyrone Jackson Feb 14, 2022 12:50PM ET
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I want it now
Scott Estes
Scott Estes Feb 14, 2022 12:50PM ET
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now do you really think it would be fair to let the average Tyrone "Joe's" Jackson's out here know the details behind those closed doors prior to every single fed member/politician to ever exist having the opportunity to short and buy/sell puts/calls on the entire market first? You need to realize there's only so much liquidity in the markets and plus, if us average Tyrone's and Joe's were aware of the exact plan for the markets reaction in the days and weeks ahead, who would they be able to rob aka take advantage of by selling these calls buying these puts and shorting these equities?
Scott Estes
Scott Estes Feb 14, 2022 12:50PM ET
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heck that's why they made the markets rise today so that they can maximize their profits before releasing the news, and now the meeting is through they will begin their true work... it's already begining!
Dominic Mazoch
Dominic Mazoch Feb 14, 2022 12:20PM ET
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Ourside of official Fed events, members should not say anything. Period.
Jose Cabreja
Jose Cabreja Feb 14, 2022 12:20PM ET
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Fed weekly Options won't print the 🤣
Iyarin Boonnum
Iyarin Boonnum Feb 14, 2022 12:12PM ET
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THE REAL INFLATION WAS 15% DONT DIVIVED BY HALF!!!​
 
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