Fed’s Bullard calls for two more rate hikes in 2023

Federal Reserve Bank of St. Louis president James Bullard said Monday he thinks the Fed needs to hike interest rates two more times this year because economic growth is surprisingly robust and inflation isn’t slowing fast enough.

He favors these hikes "sooner rather than later" without being specific about a date.

"I think we're going to have to grind higher with the policy rate in order to put enough downward pressure on inflation," he said while speaking Monday in Fort Lauderdale, Fla. "I'm thinking two more moves this year, not exactly sure where those would be. But I've often advocated sooner rather than later."

Bullard offered the most extreme view of several regional Fed presidents who spoke Monday about the direction of interest rates.

Federal Reserve Bank of Minneapolis president Neel Kashkari told CNBC it’s a "close call" if the Fed should hikes rates next month or pause, while Atlanta Federal Reserve president Raphael Bostic told a Richmond Federal Reserve conference that he was "kind of comfortable waiting a little bit to see how things play out."

"Let’s take it one meeting at a time...I really want to let this information come through. Not over react one way or the other."

San Francisco Fed president Mary Daly said Monday that she will remain data dependent, noting that "meeting by meeting decisions are the most prudent path" given stronger than expected economic and job growth juxtaposed against tighter credit conditions.

"Optimal policy…is about extreme data dependence and policy optionality," Daly said in a virtual conversation at an economic symposium at the National Association for Business Economics and Banque de France.

"It's a distraction really to say what we're going to do necessarily in June, which is still three weeks away or what we're going to do for the rest of the year."

Daly said she’s watching inflation and the impact of credit tightening against the general economic outlook to make a determination on rates.

Since March, Daly said, stronger labor market reports have shown the unemployment rate is going down, not going up and that the slowdown in job growth is still well above the number of jobs needed to match new entrants into the workforce.

"So that would mean for me that I'm going to come in [to the meeting] thinking on the data side, the economy is just stronger, the labor market is stronger than I anticipated," said Daly.

On the flip side, Daly said she thinks credit tightening is equivalent to one or two rate hikes, but will need to watch the data to see if that’s true. Coupled with that, she’s also watching for the lag effect of interest rate hikes filtering through the economy.

Daly noted that the Fed needs to be "extremely mindful" that the lag effect from monetary policy "could start to show through at any point in time. And when you add the credit tightening that we've been seeing to that, it means that there's a lot of factors pulling back the reins on the economy."

"That's why we have to be so critically data dependent because if we think it's not here yet and then we tighten too much, we could easily create an unforced air where we've over tightened," Daly added.

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