Fed Turns Very Hawkish On Inflation, Markets Turn Bullish?

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S&P 500 Futures are very BULLISH this morning and up over 18 points. Jake Sullivan, National Security Adviser, said that the White House is near to announcing a deal for European Liquified Natural Gas supplies to increase its dependence on Russia. According to the State Department, Russia’s foreign ministry expelled several diplomats from the United States in retaliatory actions.

Jamie Dimon, CEO of JPMorgan Chase, was reported to have pushed the White House to increase its investment in domestic natural-gas infrastructure.

Loretta Mester, President of the Federal Reserve Bank of Cleveland, stated that the domestic economy is strong and she supports raising interest rates to 2.5% before year’s end.

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Crude Oil114.65-0.28-0.24%

Federal Reserve policymakers on Wednesday signaled they stand ready to take more aggressive action to bring down unacceptably high inflation, including a possible half-percentage-point interest rate hike at the next policy meeting in May.

“I have everything at my disposal right now. At an event hosted by Bloomberg, Mary Daly, President of the San Francisco Fed, stated that 50 (basis points) is all we have to do. “Inflation, inflation, and inflation are top of everyone’s minds with the strong labor market.”

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Daly has been cautious about tightening policy. Her willingness to accept a larger-than-usual rate increase at the May 3-4 meeting is a sign of a growing sense of urgency to prevent inflation, which is running at three times the Fed’s 2% target from becoming entrenched.

According to Bullard, the President of St. Louis Fed, Accelerating Inflation “has required, I believe, all of us, to think more about what speed they’re going have to go in order for inflation to be under control,” Bullard said to the Mid-Size Bank Coalition of America. “We need to think bigger than we have in the past.”

Bullard was the only dissenter to the March 16 U.S. central banking decision to increase the benchmark overnight rate by 25% from its near-zero level. Bullard said a half-percentage-point hike was appropriate to kick off the tightening cycle and he wants the policy rate to rise to 3% this year.

Bullard is not the only one advocating more aggressive action. This is especially true given the growing perception that higher commodity prices, such as wheat, oil, and wheat, due to Russia’s invasion of Ukraine, will only make things worse for inflation, but little to slow economic growth.

Jerome Powell, Fed Chair, stated earlier this week that the central bank would move quickly to raise interest rates after last week’s hike. He also left the door open for a bigger jump in borrowing costs at the May Meeting.

Last week’s Fed policymaker forecasts indicated that most expected the policy rate to rise to 1.9% by the end of the year.

Loretta Mester, President of Cleveland Fed, said Wednesday that she would like to front-load some. She was being asked about the direction of interest rate hikes this year. It is better for us to do it sooner than later to be ready for whatever happens in the second half.

Mester would like the federal funds rate to rise to 2.5% by the end of the year. This level is neither braking nor boosting and would require “some” 50 basis-point rate increases

Markets have taken that view on board, with traders pricing in two half-percentage-point hikes in coming meetings, and a year-end policy rate range of 2.25%-2.5%.

 

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