Fed’s Bullard says he expects first rate hike late next year

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THE FED

St. Louis Federal Reserve President James Bullard said Friday he expects the central bank to raise its benchmark interest rate in 2022 given his forecast for above-target inflation.

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In an interview on CNBC, Bullard said it was “natural” for the Fed to tilt hawkish at its meeting earlier this week given recent strong inflation readings.

The Fed is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities, along with keeping interest rates close to zero, to support the economy.

Bullard said he expected “in-depth discussions” of slowing the asset purchases would start now that Fed Chairman Jerome Powell had opened the door for the debate.

Bullard said he was “leaning” toward supporting an end to the purchases of mortgage backed securities.

“I’m leaning a little bit toward the idea that maybe we don’t need to be in mortgage-backed securities,” he said.

Bullard’s comments are the first by a Fed official other than Powell after the central bank’s two-day meeting that ended Wednesday.

Although economists expected the Fed to be somewhat hawkish, many were surprised by the Fed’s “dot-plot” which now shows the median Fed forecast of two interest rate hikes in 2023. Before the meeting, the Fed hadn’t penciled in any moves until 2024 at the earliest.

Bullard said he penciled in a rate hike starting next year because core PCE inflation will be 3% this year and 2.5% next year. He cautioned there was a lot of volatility in the economy and his forecast could change.

Stock were set to open lower Friday and futures moved lower after his Bullard’s comments. The yield on the 10-year Treasury note moved higher.