“I recommended that the committee try to achieve a level of the policy rate above 3% this year. This would quickly adjust the policy rate to a more appropriate level for the current circumstances,” Bullard said in a statement on Friday. “In my view, raising the target range to 0.50% to 0.75% and implementing a plan for reducing the size of the Fed’s balance sheet would have been more appropriate actions,” he added.
Federal Reserve Bank of St. Louis President James Bullard favors raising rates more sharply this year than any of his colleagues. He dissented at this week’s meeting because he wanted the U.S. central bank to implement a balance-sheet reduction plan, in addition to a half percentage-point hike.
James Bullard’s dissent in favor of a half-point hike was the first vote against a decision since September 2020.
The Federal Open Market Committee policy makers led by Chair Jerome Powell voted 8-1 on Wednesday to raise interest rates by a quarter point for the first increase since 2018 as they confront the highest inflation in four decades.
James Bullard said “The committee will have to move quickly to address this situation or risk losing credibility on its inflation target. The combination of strong real economic performance and unexpectedly high inflation means that the committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation.”
With almost half of policy makers seeking to go even faster, adjusting rates on every meeting would imply a half-point move at some time during the year. The FOMC’s “dot plot” in its economic forecasts showed policy makers and their expectation of rate hikes through each of the remaining six meetings in 2022, with the median projection for a quarter point every time.
“U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower,” Bullard’s statement reveals that he had the highest forecast for rates this year and owns the lone dot above 3% in the chart.
Bullard’s statement represented an escalation in his view for the need for aggressive hiking. The St. Louis Fed leader in February had called for raising rates 1 percentage point by July 1, shrinking the Fed’s balance sheet starting in the second quarter, and then deciding on the path of rates in the second half based on updated data.
Bullard, 61, president of the St. Louis bank was the first to push for a second round of asset purchases coming out of the recession in 2007-2009. The committee eventually adopted that. He has sometimes been viewed as a bellwether for the FOMC and was also the first to push for an early end of asset purchases started during the Covid-19 economic downturn, with the committee eventually swinging around to his point of view.