Last-Resort Fed Hike Enters Debate As Uber-Hawk Bullard Invokes 1994 3/4 Point Move
From Advisor Perspectives. April 20:
The Federal Reserve’s most hawkish official cracked open the door to
discussing the first 75 basis-point interest-rate hike since 1994, a
move economists say would be a last resort in case inflation further
spirals out of control.
St. Louis Fed President James Bullard on Monday gave high praise for
former Fed Chairman Alan Greenspan’s decision to raise rates by three
quarters of a percentage point that year, saying it “set up the U.S.
economy for a stellar second half of the 1990s, one of the best periods
in U.S. macroeconomic history.”
“I wouldn’t rule it out, but it is not my base case here,” he said in
a virtual presentation to the Council on Foreign Relations.
Bullard, 61, an economist who’s worked at the St. Louis Fed since
1990 and became its president in 2008, has been the strongest voice for
tighter policy among Federal Open Market Committee participants over the
past year. He’s also become an influential voice whose more recent
recommendations have ended up being followed by other committee members,
though his impact throughout his tenure has been mixed.
In recent months, he has urged the FOMC to halt its purchases of
Treasuries and mortgage-backed securities early, which the panel did in
March, and has pushed for a half-point hike starting in early February,
which Fed Chair Jerome Powell and other policy makers have now said is
on the table if needed for their May 3-4 meeting.
“Seventy-five basis points has to be on the table if inflation
accelerates sharply,” said Stephen Stanley, chief economist at Amherst
Pierpont Securities LLC. “Is it likely? No. I think inflation would have
to be accelerating, giving a sense of getting of out of control, to
spark a move of that magnitude.”....
