Fed’s Bullard Comments on Inflation, Policy Preference and the Fed’s Credibility

President of the St. Louis Federal Reserve, James Bullard (Hawk)

James Bullard is known as one of the ‘hawks’ within the Feds ranks and is one of the current voting members. For live updates on important ‘Fed speak’ follow @DailyFXTeam

The following is a summary of James Bullard’s recent comments in an interview held by CNBC on the 14th of February:

Bullard on Inflation

Bullard believes the last four inflation reports suggest it is expanding, justifying a 100 basis point policy rise by July 1st

• “The Fed’s reputation is on the line, and it must react to data without disrupting markets.
• I believe my strategy is good; but, I must persuade my colleagues.
• It is down to Fed’s Powell to decide on rate hike timing.”

Policy Stance

• “Initial rate rises and balance-sheet runoff are relatively cheap.
• Since the summer, I’ve been urging CMTE to move faster.
• I’m more concerned that we’re not moving quickly enough.
• From balance sheet run-off, I’d want to see the yield curve steepen.
• The FOMC hasn’t reached a consensus on-balance-sheet strategies.
• Would prefer to start passive run-off in q2, with asset sales as a plan B if necessary.”

Bullard on the Fed’s Credibility

• “The Fed must reassure the public that it will defend the target inflation rate
• If inflation does not reduce in the second half of the year, the Fed will be in a pickle, and it is necessary to prepare for that eventuality now.”

On Unemployment

• “Fed’s Bullard predicts that the unemployment rate will fall below 3% this year.
• The United States has one of the strongest labor markets in history, with job vacancies greatly outnumbering the number of jobless.
• Companies are rushing for workers, which is reflected in Pay.”

Bullard on the Stock Market and the Economy

• “There’s no reason why high equity valuations can’t keep on.
• I believe we’ll see a reopening impact in the 2nd and 3rd quarters for GDP.”

US Dollar Index (DXY) 5 Min Chart

Source: IG, prepared by Richard Snow

More Fed Speakers to Come

We end the week off on Friday with a whole host of Fed speakers which markets will watch closely to find if there is any cohesiveness in their messages although a March rate hike is all but guaranteed at this point. The big talking points shift to the timing of balance sheet run offs.

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX