Inflation risks may warrant the Federal Reserve beginning raising interest rates next year, St. Louis Fed President James Bullard said, backing an even-earlier liftoff than penciled in by many of his colleagues.
"I put us starting in late 2022," Bullard said Friday during a TV interview on CNBC, referring to interest-rate projections published Wednesday by the U.S. central bank after a two-day policy meeting.
"But you do have to have the idea that these are related to what the forecast is. So, my forecast said 3% inflation in 2021 — core PCE inflation — and 2.5% core PCE inflation in 2022," he said. "If that's what you think is going to happen, then by the time you get to the end of 2022, you'd already have two years of 2.5-3% inflation."
Bullard's remarks are the first in public by a Fed official since Chair Jerome Powell concluded his post-meeting press conference.
Yields on shorter-term Treasuries rose on Friday after the comments by Bullard — whom Fed watchers in the past have viewed as one of the central bank's most dovish officials.
The Fed on Wednesday published economic projections showing 13 of 18 participants on the policy-setting Federal Open Market Committee thought it would probably be appropriate to begin raising interest rates from their current near-zero levels by the end of 2023.
That marked an increase from just seven participants who thought such a timeline for rate hikes would be appropriate back in March, the last time updated projections were published.
In the new forecasts, seven participants penciled in a 2022 liftoff — up from four in March. Bullard sits on the FOMC but does not vote on committee decisions this year.
The updated forecasts followed two months of Labor Department reports on consumer prices that showed hotter-than-expected inflationary pressures in April and May.
While Fed officials have largely maintained that the price pressures in recent months are associated with the reopening of the economy and will therefore be transitory, forecasts for inflation published alongside the rate predictions revealed that many officials see a risk that the higher inflation will be somewhat persistent.
