(Bloomberg) The surge in U.S. consumer prices by more than forecast in January is adding to expectations that the Federal Reserve will raise rates soon and quickly. Goldman Sachs Group Inc. now sees seven 25 basis points hikes in 2022, one for every meeting left in the year. Traders are also pricing close to even odds of a 50 basis points move at the March meeting. Yesterday, Federal Reserve Bank of St. Louis President James Bullard, an FOMC voter this year, only added to that speculation when he said he like to see a full percentage point of tightening by July 1. He also raised the possibility of a move between scheduled meetings.
I do not think there is anything wrong with Bullard statement. Fed can certainly do a 0.50% in March meeting. Bond market already accepted that as given. Market would be surprised if Fed does not do that. Total 1% before July 1 is perfect doable and Fed should just do that. Of course Bullard is only one Fed member. Bond traders agree with him. I agree with him too. Fed has been behind the curve for so long.
I think Bullard's statement may have been coordinated with Jay Powell. A top Fed official won't speak out without his own responsibility. It could be the directive from Fed Chair to communicate with the market and get prepared for the 1% rate increase by July 1. This is the same way company CEOs "guide" analysts of the company earnings. That is a part of the company "earning" game. Fed had no game to play here. Just want to communicate.
Actua Actually the odds of a 50 bp move in March has decreased on Friday so I'd this is a kind of a brave call. The inflation is still expected to start fading in 2Q because so there is a risk that Fed will choke growth with abrupt or too aggressive action.
Interest rate hikes, especially multiple ones, usually take many months - like 6 to 12 months minimal. Things happen fast these days, so maybe it might be more like 3 to 6. Time will tell.
Yeah exactly that's why recent run on hopes of the Fed's fast action is an overreaction and it looks like that it's gradually reassessed towards correct outcome.
The first few rate hikes will have zero impact on corporate NA and a good chunk of the inflation will likely temper. If we look at 2016, a similar vibe existed on this site and a normal size correction occurred. Many decided the bull was over. In reality, numerous rate hikes came and markets went much higher from later that year until Covid hit. The reason was earnings expansion. And anyone on here claiming we don't have earnings expansion isn't paying attention. Imagine when the supply chain problems dissipate, Covid ends as a meaningful threat, and consumers are more free to spend the excess savings they have now. That could be dramatically bullish. Might be tempered by the rate hikes but guess what that's why they are hiking because the economy may overheat.