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

Steve Helber / AP
Steve Helber / AP

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.

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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.”

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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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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