A key Fed figure sees interest rate increases kicking off in the United States in late 2022, it was revealed on Friday, as the cadence of inflation increased faster than expected.
St Louis Federal Reserve president James Bullard’s prediction, given to CNBC, was faster than the Federal Open Market Committee’s outlook released late on Wednesday.
The Fed foresaw no rate increases in March, but after its meeting earlier in the week, its median forecasts saw up to two hikes in 2023.
Speaking with the CNBC programme Squawk Box, Bullard said he was expecting a “good year” amid the post-pandemic economic reopening.
“But this is a bigger year than we were expecting, more inflation than we were expecting,” he said.
“I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.”
The Fed also lifted its forecast for economic growth on Wednesday, predicting GDP to rise 7% in 2021, from a previous 6.5%.
That strong growth was leading to quicker-than-anticipated inflation, with Bullard seeing inflation of 3% in 2021 and 2.5% in 2022, before settling back towards the central bank’s target of 2%.
“If that’s what you think is going to happen, then by the time you get to the end of 2022, you’d already have two years of two-and-a-half to 3% inflation,” he said.
“To me, that would meet our new framework where we said we’re going to allow inflation to run above target for some time, and from there we could bring inflation down to 2% over the subsequent horizon.”
James Bullard does not have a vote on the FOMC this year, but will be a voting member next year.