Bar For Jumbo Fed Move In December Is Higher Than Bullard Thinks

By Ven Ram, Bloomberg markets live reporter and analyst

Now that we have had yet another set of numbers that show inflation and inflationary expectations cocking a snook at policy makers, the Fed has duly floated a trial balloon: the idea of another jumbo hike in December.

Fed St. Louis President James Bullard suggested that the policy committee may have to bring forward some of its penciled-in rate increases for next year, though he made it clear that the judgment would be “premature to make” just yet. Last week, we saw the headline inflation number for September come in much higher than forecast, while the University of Michigan’s latest survey showed one-year-ahead inflation expectations climb a full 40 basis points to 5.1%, setting the context for Bullard’s argument.

Now, when Bullard speaks, the markets sit up and take notice. There is little question that he is an influential voice on the Fed, though he has advocated front-loading the rate hikes for a few months now, with the idea being that the 2023 should be the year of the policy committee letting measures taken this year work through the economy.

Persuasive as that idea seems, it is far from clear that rest on the policy committee will agree. Here’s why:

• The median of the Fed’s dot plot shows rates converging to 4.40% this year. With the upper end of the benchmark now at 3.25%, that would suggest a 75-basis point increase in November followed by another 50-basis point move in December

• Kansas City Fed President Esther George said the monetary authority should avoid too much haste even though the terminal rate may be higher

With two more sets of key employment and inflation data sets yet to come before the Fed will make its December decision, there is still plenty of time for the policy committee to make up its mind.

For Bullard’s trial balloon to gain traction, those numbers may need to be mighty persuasive.