The spike in inflation to a nearly 40-year high has “dramatically” changed the outlook for St. Louis Federal Reserve Chairman James Bullard, who says he now wants a more aggressive response from the US Federal Reserve, with interest rates rising by 1% by July.
“I would like to see an increase of 100 basis points by July 1,” Bullard said in an interview with Bloomberg News, following the release of inflation data showing that it ran at 7.5% in the twelve months to January.
Within minutes, Bullard’s view had spread to the market, with futures futures now appreciating an increase in the Fed’s interest rate target range to 1% -1.25% by the end of June, with some economists they “bet” on an even more aggressive policy.
With just three Fed meetings due in July, Bullard’s comments open a “window” for at least a one-half increase to that point, which is considered a big move by the Fed as it has done nothing similar to any of the its recent interest rate hikes.
CME Group futures contracts now value a 100% increase in interest rates by half a percentage point in March, up from a 25% chance they gave on Wednesday.
Prior to today’s inflation figures, most economists and analysts had estimated that the Fed would gradually increase it by 0.25% at a time.
Source: Capital

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