St. Louis Fed President sees first interest rate hike in 2022

James Bullard, the president of the Federal Reserve Bank of St. Louis, predicted during an interview with CNBC that the central bank would raise interest rates in late 2022 due to rising inflation

Bullard said he expects inflation to grow at a 3 percent rate in 2021 and a 2.5 percent rate in 2022, and that this would justify raising interest rates. 

In March, the Federal Open Market Committee projected core PCE inflation rates of 2.2 percent and 2 percent respectively. 

“If that’s what you think is going to happen, then by the time you get to the end of 2022, you’d already have two years of 2 1/2 to 3 percent inflation,” Bullard said during the interview. “To me, that would meet our new framework where we said we’re going to allow inflation to run above target for some time, and from there we could bring inflation down to 2 percent over the subsequent horizon.”

Bullard cautioned that other members have different forecasts, saying it’s not certain that inflation in 2021 will continue into 2022. He also explained that because he’s making predictions so far out in the future, his prediction may not hold. 

Bullard said the good news is that the committee is projecting 7 percent GDP growth, a jump from its projection in March of 6.5 percent growth.

“Overall it’s very good news. You love to have an economy growing as fast as this one. You love to have a labor market improving the way this one has improved. Unemployment way down from the 14.7 percent peak at last spring,” Bullard said.

“The inflationary impulse I think is more intense than we were expecting. You know, the real three percent on core PCE inflation — how long has it been since we’ve seen that? So I think there is some upside risk that. You’ve got more reopening to occur in the second half of the year. Here some states and cities just opening up now. So I think you could see even some upside risks to the inflation forecast,” Bullard added.