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The Fed is likely to still take a measured approach to rate hikes despite calls for bigger action

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Washington Federal Reserve Building. January 26, 2022.

Joshua Roberts | Reuters

Privately and publicly, several Federal Reserve officers are rebuking calls for massive rate increases by St. Louis Fed President Jim Bullard on Thursday. Instead, they suggest that the central bank will likely take a slower path initially.

These comments may suggest that markets have incorrectly misinterpreted Bullard’s statements as more widely held than is the Fed leadership and officials.

Raphael Bostic of Atlanta Fed stated that his views had not changed following the inflation report. CNBC was told Thursday by Bostic that “my opinions haven’t changed” regarding three to four rate hikes in this year. This would likely start with a 25-basis points hike. This was the exact same viewpoint he gave CNBC on WednesdayThe inflation report was not yet published. (1 basis point equals 0.01%.)

Following the publication of the Consumer Price Index rose 7.5% year over year, a fresh 40-year high, Bullard told BloombergHe desired to have 100 basis points in tightening by July. That includes a possibility of a rate rise of 50 basis points and possibly an intermeeting.

Bullard’s remarks caused stock prices to fall sharply, despite the fact that they had not been affected by the report on inflation. Bond yields also soared, a sign that stocks, although having shrugged off this, were actually selling off. This 25-basis point increase in 2-year yields was the biggest one-day rise since 2009’s Great Financial Crisis. The March 50 basis point hike was almost certain, although Bullard said that he wasn’t sure.

In a speech later that day, Richmond Fed President Tom Barkin stated that he needed to “be convinced” that a rate increase of 50 basis points was necessary. He said that there might be a moment for it, but that this time did not seem to be the right one.

Mary Daly of San Francisco Fed stated after receiving the inflation report that she does not prefer a 50-basis point hike.

CNBC reported that Fed officials had been looking at a low inflation rate and that the January report did not show any significant improvement. These officials would like to speed up tightening if inflation continues to climb and isn’t responding to rates hikes or plans for balance sheet decrease.

Five weeks remain before the meeting. There is also another inflation report. The situation could change. However, key officials continue to believe in a gradual tightening even after the inflation report.

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