Bullard Wants to ‘Front-Load’ Interest Rate Hikes — How Will That Impact You?

Federal Reserve Bullard-Lower for Longer, Richmond, USA - 18 Nov 2019
Steve Helber / AP / Shutterstock.com

At least one Federal Reserve official wants the central bank to get busy with its planned 2022 interest rate hikes by front-loading them during the first half of the year, but some worry such a move could have a negative impact on the stock markets and economy.

See: How Are Big Businesses Reporting Record Profits When Inflation Is So High?
Find: Where To Invest Your Money When Inflation Is High — and What Investments To Avoid

St. Louis Federal Reserve President James Bullard proposed that the Fed raise its benchmark short-term borrowing rate a full percentage point by July as a way to tame inflation, CNBC reported.

Bullard first made the suggestion in an interview with Bloomberg last week. His comments rattled the stock markets and led some to speculate that there could be as many as seven quarter-percentage point hikes by the end of the year — much higher than the four hikes most economists expect.

Bullard reiterated his position this week, telling CNBC that the Fed needs to front-load more of its planned hikes.

“We’ve been surprised to the upside on inflation,” he said. “Our credibility is on the line here and we do have to react to the data. However, I do think we can do it in a way that’s organized and not disruptive to markets.”

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That last point is key, because many fear that aggressive rate hikes could indeed disrupt the markets. For investors, this could lead to further volatility in a stock market that has already been choppy this year.

Discover: Despite January’s Inflation Report, Fed Isn’t Inclined to Immediately Hike Interest Rates

Front-loading interest rate hikes might also lead to sharply steeper borrowing rates for everything from mortgages and cars to business loans. This in turn could stall the U.S. economic recovery — an economy seeking relief from the worst of the COVID-19 pandemic.

“History tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we’re trying to achieve,” San Francisco Fed President Mary Daly told CBS’s “Face the Nation” on Feb. 13.

But Bullard downplayed concerns over the economy, saying corporate earnings “will be just fine” and projecting that the fading impact of the omicron variant will lead to a “second sort of reopening of the U.S. economy,” MarketWatch reported.

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Learn: Most Recent Fed Meeting Shows Possible Interest Rate Move This Year
Explore: Fed Rate Hikes 2022: Experts Predict How Many To Expect and How Much Interest Will Increase

The more pressing problem now, he said, is getting runaway inflation under control — especially since it has been rising at around 7.5% in recent months.

“The inflation that we’re seeing is very bad for low- and moderate-income households,” Bullard said. “People are unhappy, consumer confidence is declining. This is not a good situation. We have to reassure people that we’re going to defend our inflation target and we’re going to get back to 2%.”

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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