Fed must raise rates to 4.9% to bring down inflation – Bullard

By Alessandro Albano

Investing.com – Despite markets’ expectations of a Fed pivot at the December Fed meeting, comments from policymakers continue to come in to dampen investor sentiment.

The latest to join the hawks’ voice is St.Louis Fed Governor James Bullard who, in an article posted on the bank’s website, explained the reasons why rates should reach a final level higher than those priced in by derivatives.

“What level of policy rate is necessary to put downward pressure on inflation?” asks Bullard, responding that a policy rate of 3.5% “is the minimum necessary.”

Results based on the latest inflation rate for September, however, suggest that “a rate of at least 4.9 percent is needed to exert downward pressure on inflation.”

Thus, the banker explains in the article, “rates have not yet reached a level that could be considered sufficiently restrictive.”

In terms of monetary stance, the U.S. bank is approaching a point of monetary accommodation and “we will be able to move to what I would call an ordinary monetary policy,” meaning, Bullard explains, “a data-dependent policy that looks more like that of the 1990s.”

When the FOMC deems it sufficient that the level of fed funds can exert significant pressure on , from that point on the committee can “raise or lower the policy rate depending on the incoming data, without first having to raise it from close to zero to a level considered appropriate for the inflationary environment.”

“Exactly what that point will be and when it will occur remains to be determined,” Bullard concludes in the article.

As a reminder, according to Investing.com’s , futures are pricing in a Feb funds range of 5% to 5.25% for the May meeting compared to the current 3.75% to 4%.

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