St. Louis Fed president James Bullard speaking
- The US has had an "inflationary shock" that is large and which the Fed needs to take into account calibrating policy in 2022
- sees inflation at 2.5% still through 2022, with risk of it being much higher and forcing the Fed into inflation fighting mode
- Wants taper completed by Q1 2022 to open option for interest rate increase if needed
- Firms currently have pricing power and executives seem confident that they can pass rising input costs along to consumers
- Labor markets are as tight as they ever get with more job openings then unemployed
- Pandemic retirees are not coming back. Fed does not need to strive to full return of pre-Covid employment
- Economy has clearly adapted to coronavirus
- Does not see Delta variant stopping the economies progress
- Sees Q4 2022 as logical time for initial rate increase given expected ongoing employment gains and strong inflation
- Expects the Fed to allow balance sheet to run off after taper is complete, allow market pricing to take over in the long term credit markets
- Taper is mostly priced into markets at this point, details matter only a little at this point
- Upper half of income distribution can always hedge against inflation, lower income families hit hardest by the rising prices
Feds' Bullard is one of the most hawkish of the Fed president's. He is a voting member in 2022
