Fed officials sent another hawkish speech, Bullard said the earliest next year to raise interest rates

St. Louis Fed Governor Bullard said in an interview Friday that the Fed is expected to raise interest rates for the first time in late 2022 at the earliest because inflation is rising faster than previously expected.

This timing is even earlier than the Fed’s latest hint. The latest interest rate resolution shows that more than 70 percent of Fed officials expect to raise rates in 2023, and more than 60 percent expect to raise rates twice in the same year, compared with less than 40 percent of officials who expected to raise rates in 2023 in March.

In an interview with CNBC, Bullard said, “We had expected a good year with a good economic reboot. But this year is even better than we expected, inflation is higher than we expected – I think it’s natural for us to lean a little bit more hawkish.”

On the inflation front, Bullard said things have been exceeding the Federal Open Market Committee’s expectations for the past six months. “If you look at the December 2020 forecast, we were expecting 4% real GDP growth in 2021. Now we’re saying 7%.”

On the timing of the first rate hike, Bullard said it expects the Fed to start in late 2022, “but you have to understand it has to do with forecasts. My forecast is for 3% inflation in 2021 – that is, core PCE inflation – and 2.5 core PCE inflation in 2022”.

Bloomberg comments that Bullard’s latest speech confirms that the market has now passed the stage of speculation about when the Fed will discuss a cut and has officially entered the stage where the Fed is discussing a cut. Looking ahead, the Fed has changed the context. The U.S. is no longer in the midst of an epidemic pandemic, but in the recovery phase from one, which will mean a move toward a new monetary policy response mechanism.

Bullard’s speech reinforced the Fed’s hawkish tone, and U.S. Treasury yields continued to climb during his speech, with the U.S. 2-year Treasury yield rising to 0.25%, the highest level since April 2020; the dollar also rose in response.