By Howard Schneider
WASHINGTON, March 18 (Reuters) – Saint Louis Fed President James Bullard on Friday called for a sharp interest rate hike to more than 3% this year, a step he said was necessary to catch up with an inflation that supposes an “especially heavy” burden for families.
In a statement explaining his disagreement with the Fed’s approval of a quarter-point hike this week, Bullard said the Fed “will have to move quickly to deal with this situation or risk losing credibility in its inflation target.
He said he was not just in favor of a half-point hike this week, but hikes at a pace that required half-point increases in five of the six remaining Fed meetings this year.
“The US economy has proven to be especially resilient” in the face of the pandemic and geopolitical risks, Bullard said.
With inflation above 6%, triple the Fed’s 2% target, Bullard said more central bank action is needed “to prudently manage the US macroeconomic situation.”
The pace of rate hikes it suggests is well above even what investors have priced into contracts linked to the fed funds rate.
The Fed on Wednesday unveiled the first rate hike since 2018, effectively ending its battle against the economic fallout from the pandemic to bring inflation under control.
Although most Fed officials see six rate hikes of more than a quarter point this year, seven of the current 16 Fed policymakers believe, like Bullard, that it could be increased further to 2022 penalties.
Bullard had dissented four times since becoming St. Louis Fed president in 2008, including three times under current chairman Jerome Powell.
(Edited in Spanish by Carlos Serrano)