‘alarming’ report
Bullard said the inflation report made clear “the persistence of inflationary pressures in the US is a matter of concern to me and the Federal Reserve.”
“Inflation is at its highest rate in 40 years and I think we have to be smarter and more reactive to the data,” he added.
The 10-year US Treasury yield is above 2%.
The St. Louis Federal Reserve chief indicated that the Federal Reserve may at some point consider a move to raise interest rates between scheduled meetings.
It also highlighted for the time being the focus of monetary policy makers on the 15-16 March meeting and a commitment to end asset purchases before starting to raise interest rates.
“There was a time when the committee had to react to similar events and have an immediate meeting and decide to raise rates by 25 basis points right away and I think we have to get smart and think regarding that kind of action,” Pollard said.
Investors have raised their bets on the pace of rate hikes since the Federal Open Market Committee meeting in January and have shifted to betting on regarding 6 rate hikes this year versus the 3 that officials expected in December.
Following the CPI report, markets were evenly divided on the possibility of a 50bp rate hike in March.
Global central banks’ trends mark the end of the “easy money” era
Other Federal Reserve officials have expressed support for the gradual move. Pollard said a decade ago that a “shock and awe” approach was rarely justified. But on Thursday, he said, the surprisingly high inflation data from October through January warrants an appropriate response.
Bullard sees that markets are already pricing in strong moves. “I don’t think that’s shocking and awe,” he said. “I think it would be a reasonable response to a sudden inflationary shock that we had in 2021 that we didn’t expect.”
In contrast, San Francisco Fed President Mary Daly, who is in favor of a March rate hike, told Market News International on Thursday that she would prefer not to send a strong signal of a 50bp increase next month because markets have already started selling assets.