Interest rates should go up another 150 bps this year: Bullard

The U.S. economy has already plunged into a “technical” recession but James Bullard does not expect the central bank to pivot anytime soon.

Inflation will take time to return to 2.0%

The President of the Federal Reserve Bank of St. Louis wants the overnight rate to be in the range of 3.75% to 4.0% by the end of the year. For that to be true, another 75-bps hike in September looks very likely.

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Bullard is not entertaining the debate around “rate cuts” in the near-term because he’s convinced the CPI that climbed to a new forty-year of 9.1% in June will take a while before it returns to 2.0% (target). On CNBC’s “Squawk Box”, he said:

I think we’ll probably have to be higher for longer in order to get the evidence that we need to see that inflation is actually turning around on all dimensions, and in a convincing way coming lower, not just a tick lower here and there.

What are the implications for the stock market?

S&P 500 is now up more than 13% from its low in June, much of which was related to a rebound in tech stocks. But if the Fed is indeed as hawkish as Bullard is anticipating, it could mean trouble for “growth” and, consequently, for the broader market moving forward.

Despite two consecutive quarters of negative GDP, he’s convinced that the U.S. economy is not in a “recession” because the job market continues to be strong.

We’re not in a recession right now. With all the job growth in the first half of the year and a flat unemployment rate at 3.6%, it’s hard to say there’s a recession.

Bullard expects the economy to return to growth in the balance of 2022.