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September inflation warrants “frontloading,” but may not need higher overall rates By Reuters


© Reuters. FILE PHOTO: St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore October 8, 2018. REUTERS/Edgar Su/File Photo

By Howard Schneider

WASHINGTON (Reuters) – A “hotter-than-expected” September inflation report doesn’t necessarily mean the Federal Reserve needs to raise interest rates higher than officials projected at their most recent meeting, St. Louis Fed President James Bullard said Friday, though it does warrant continued “frontloading” through larger three-quarter-percentage point steps.

In a Reuters interview, Bullard said U.S. Consumer Price Index data for September released this week showed inflation had become “pernicious” and difficult to arrest, and therefore “it makes sense that we’re still moving quickly.”

After an expected three-quarter-point increase at the Fed’s Nov. 1-2 meeting, Bullard said that while it was “too early to prejudge” what to do at December’s meeting, “if it was today, I’d go ahead with” another three-quarter-point hike, which would mark the fifth in a row.

The Fed has hiked its policy rate by that magnitude at its last three meetings, and two more three-quarter-point increases by year end would bring its rate to a range of 4.50%-4.75% from the current 3.00%-3.25%.

But in what were tempered remarks for one of the Fed’s recently most-hawkish voices, Bullard said that at that point he would let further increases rest on incoming data.

“I do think 2023 should be a data dependent sort of year. It’s two sided risk. It is very possible that the data would come in a way that forces the committee higher on the policy rate. But it’s also possible that you get a good disinflationary dynamic going and in that situation the committee could keep the policy rate and hold it steady,” Bullard said a day after the CPI report for September showed inflation continued above 8%.

The possibility of a fifth larger-than-usual increase in December is “a little more front loading than what I’ve said in the past,” Bullard said.


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