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At least one Federal Reserve official wants the central bank to deal with its planned 2022 interest rate hikes by preloading them in the first half of the year, but some fear such a move could have a negative impact on stock markets and the economy.
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St. Louis Federal Reserve Chairman James Bullard has proposed that the Fed raise its benchmark short-term borrowing rate by a full percentage point by July to keep inflation under control, reported CNBC.
Bullard first made the suggestion in an interview with Bloomberg last week. His comments rattled stock markets and led some to speculate there could be as many as seven quarter-percentage-point hikes by the end of the year â far more than the four hikes that s expect most economists.
Bullard reiterated his position this week, telling CNBC that the Fed needed to further accelerate its planned hikes.
âWe were surprised by the rise in inflation,â he said. âOur credibility is at stake here and we have to react to the data. However, I think we can do it in an organized and non-disruptive way for the markets.
This last point is critical, as many fear that aggressive rate hikes will effectively disrupt markets. For investors, this could lead to increased volatility in a stock market that has already been choppy this year.
Find out: Despite the January inflation report, the Fed is not inclined to raise interest rates immediately
Anticipated interest rate hikes could also lead to significantly higher borrowing rates for everything from mortgages and cars to business loans. That in turn could stall America’s economic recovery â an economy seeking relief from the worst of the COVID-19 pandemic.
âHistory tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the growth and price stability that we are trying to achieve,â the Fed Chair said. San Francisco, Mary Daly, at CBS’ “Face the Nation” on February 13. .
But Bullard played down concerns about the economy, saying corporate earnings “will be fine” and predicting that the waning impact of the omicron variant will lead to a “second kind of reopening of the U.S. economy”, it reported. MarketWatch.
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The most pressing issue now, he said, is getting the runaway inflation under control, especially as it has risen by around 7.5% in recent months.
“The inflation we’re seeing is very bad for low- and moderate-income households,” Bullard said. âPeople are upset, consumer confidence is down. It’s not a good situation. We have to reassure people that we will defend our inflation target and we will return to 2%â.
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