Fed's James Bullard says interest rate policy is 'behind the curve' but 'all is not lost'

cnbc.com:

The Federal Reserve needs to raise interest rates substantially to control inflation but may not be as «behind the curve» as it appears, St. Louis Fed President James Bullard said Thursday.

One of the Federal Open Market Committee's most «hawkish» members in favor of tighter policy, Bullard said a rules-based approach suggests the central bank needs to hike its benchmark short-term borrowing rate to about 3.5%.

However, he said bond market adjustments to the Fed's more aggressive policy, in which yields have surged higher, suggest rates are not that far askew.

«If you take account of [forward guidance] we don't look so bad. Not all hope is lost. That is the basic gist of this story,» Bullard said in a speech at the University of Missouri.

«You're still behind the curve, but not as much as it looks like,» he added. Markets are pricing in rates hitting the 3.5% rate in the summer of 2023, a bit slower than Bullard anticipates, according to CME Group data.

The comments come the day after minutes from the March FOMC meeting indicated officials were close to approving a 50-basis-point rate hike but settled on 25 points due to uncertainty around the war in Ukraine. A basis point is 0.01 percentage point.

In addition, members said they foresee the Fed starting to shed some assets on its nearly $9 trillion balance sheet, with the likely pace evolving to a maximum $95 billion a month.

Both moves are an effort to control inflation running at its fastest pace in more than 40 years.

Bullard, a voting member on the FOMC this year, said Thursday that «inflation is too high» and the Fed needs to act. In projections released in March, Bullard called for the highest rates among his peers on the FOMC. He has said he wants to see 100 basis