Bullard says Fed needs to “move forward” downward, may need to be aggressive to stop inflation

St. Louis Federal Reserve Chairman James Bullard said Thursday that the central bank should begin curbing its monthly stimulus efforts soon and end the process in late March to prevent the U.S. economy it overheats.

Many Fed leaders believe the central bank should slow the pace of its monthly purchases by $ 120 billion in Treasury bonds and mortgages in a process known as tapering.

Bullard said Fed purchases were adequate in 2020 to support U.S. business through the Covid-19 pandemic, but they now run the risk of creating bubbles in financial markets and runaway inflation.

“We have a new framework that we said would allow inflation to exceed the target for some time, but not well above the target,” Bullard said of recent price increases in the U.S. economy.

“So for that reason I think we want to continue with the taper. Finish the taper by the end of the first quarter of next year,” he continued. “And then we will be able to assess what the situation is and we will be able to see at this point if inflation has moderated and, if so, we will be in good shape. If it has not moderated, we will have to be more aggressive to contain inflation “.

Bullard, who spoke with Steve Liesman of CNBC for an interview aired on “Squawk Box,” said there is some evidence that the Fed bond purchase bombing has begun to create bubbles in the market. American real estate.

“I think there’s concern that we’re doing more damage than helping with the purchase of assets because there’s an incipient real estate bubble in the U.S.. The average home price, at least the number I saw, was close to $ 400,000.” , he said. “We had a lot of problems in the mid-2000s being too complacent with house prices, so I think we want to be very careful on this occasion.”

Officials have set the standard for “substantial additional progress” as the point at which they will consider tightening monetary policy that includes benchmark interest rates that remain at zero.

Bullard spoke as part of the Fed’s annual Jackson Hole conference, which is virtual in 2021 to protect itself from the spread of Covid-19. The yield on the 10-year Treasury note was last traded at 1.358%.

Central bank leaders use the summit to discuss the current state of the US economy and how monetary policy could be adjusted. There is likely to be a major debate this year about when to start shrinking.

Bullard is known as a “hawk” among central bank officials, meaning he tends to be more apt to chase higher interest rates and curb easy politics before his peers. He is not a voting member of the Fed’s political decision-making committee in 2021, but he will be in 2022.

Reducing the $ 120 billion monthly minimum in bond purchases is the first step in the adjustment process. Subsequently, the Fed would go on to raise interest rates.