Ahead of Chairman Powell’s keynote address at the Jackson Hole conference U.S. Federal Reserve speakers were out in force. President of the Federal Reserve Bank of St. Louis, James Bullard said that the markets aren’t properly pricing in the idea that inflation and interest rates will stay high for a long time. He added that current pricing which estimates that the Fed will stop raising interest rates next year and may cut them is overly optimistic.
Restrictive monetary policy for a longer period of time than expected may make markets, including cryptocurrency, less willing to take risks. Indeed, bitcoin (BTC) and other crypto assets have risen and fallen alongside stocks in recent weeks, as investors hoped that the Fed would slow or stop its aggressive rate hikes.
Bullard also said that he likes to “front load” rate hikes and that aggressively raising rates at the start shows that the Fed is worried about inflation. His prediction of a Fed funds rate of 3.75–4% by the end of the year, compared to the current rate of 2.25–2.5%, is about 25–50 basis points higher than what markets have priced in for short-term rates.
Most of the speakers including Fed presidents who spoke from Jackson Hole on Thursday did not say much about what central bankers plan to do at the September Federal Open Market Committee (FOMC) meeting.