Federal Reserve Presidents Bullard & Kashkari confirm Fed can’t pause hikes

In an exclusive interview with Kathleen Hays of Bloomberg News today Federal Reserve Bank of St. Louis President James Bullard reinforced the resolve of the Federal Reserve to continue their aggressive rate hikes to curb high inflation. James Bullard said that it is good news that markets are pricing in anticipated interest rate hikes, making it important that officials “follow through” and implement those increases to curb high inflation.

He said that the Federal Reserve has continued to be surprised that inflationary pressures continue to grow confirming that the goal of the Federal Reserve is to get their fed funds rate closer to 4.5% or 4.75%. Bullard said that a 75-basis point rate hike at the November FOMC meeting “has been more or less priced into markets”. However, he added that he’d prefer to wait until the meeting to decide his preference for the size of the hike.

He did not confirm that a November 75-basis point rate hike would be followed by an additional 75- basis point rate hike in December saying that he didn’t want to “prejudge” what he would support at the December meeting.

Amongst Federal Reserve officials James Bullard is considered to be one of the most hawkish officials. He was the first Federal Reserve President to publicly suggest rate hikes of 75 basis points. In the interview, he said that the CPI core rose to 6.6% in September year over year and that continues to be a worrisome pattern.

His interview follows yesterday’s comments made by Minneapolis Federal Reserve President Neel Kashkari at the Women Corporate Directors Minnesota Chapter. During a panel discussion, he also confirmed the Fed will maintain an aggressive monetary stance saying that “The Fed can’t pause its campaign of monetary policy tightening once its benchmark interest rate reaches 4.5% to 4.75% if “underlying” inflation is still accelerating.”

These statements reinforced the market sentiment that yields in government debt will continue to rise which is exactly what we saw today. Futures on the 10-year note rose by 3.23% today yielding 4.127%, and the 30-year bond treasury yield rose by 2.61% yielding 4.126%. These higher yields in turn strengthened the dollar resulting in a 0.75% increase in the dollar index which is currently fixed at 112.835.

This pressured gold futures dramatically lower taking the most active December contract to $1634.40 after factoring in today’s $21.50 or 1.30% price decline.

Wishing you as always good trading and good health,