Fed's Bullard says he still expects 7% growth this year
Comments from Bullard:
- The number was a bit lower than expectations were 6 or 8 weeks ago but it will just push growth into H2
- Q2 GDP report 'very good' on the whole
- Says he still expects 7% growth this year
- Says he expects above trend growth 'for quite some time' in the US
- Productivity seems much higher and technology is helping that
- There is 'overwhelming' anecdotal evidence of tight labor markets in the US, seeing offers of hiring bonuses and other benefits
- Jobs could be fully recovered by next summer, which would meet the fed condition for raising rates
- The criteria for labor market recovery will be met sooner than many expect even under benign assumptions about growth
Bullard is one of the FOMC members who are pushing for sooner tightening. He's a voter in 2022.
The comment on jobs is an interesting one.
- This year's inflation is enough to make up for some of the past downside misses, the Fed should 'declare success' on meeting average inflation target
- Fed is coming up a little short in preparing for a possible high inflation shock
- Fed should start taper in autumn and go 'fairly rapidly' to end taper by the end of Q1
- Ending the taper in early 2022 would open the way for a rate increase if needed
This is a significant hawkish turn from Bullard and I'd wager he's now clearly the biggest hawk at the Fed. He's done this kind of thing before and his track record on economic predictions is highly suspect.
- It might be fine to reduce Treasury and MBS purchases at the same time in proportion to the buying that has been done
- Setting a taper end point in early 2022 would be 'prudent risk management'
Imagine the market reaction if Powell said he wanted the taper to be finished in early 2022?