St. Louis Fed President James Bullard said he expects inflation to remain above 2.8% through next year. It’s going to “stay above target over the forecast horizon”, and there is “now a risk we are going to overachieve and be too high for too long”.
In his outlook, interest rates should be raised twice next year, reflecting faster and more persistent inflation than foreseen. It may all work out “and we will converge into bliss at the steady state where inflation is at 2% and we never change the funds rate again,” he said. “That is the current scenario…We all know reality will probably be something messier.”
“It could easily be the case that inflation could fall back to target and it will be all beautiful the way we have described it,” he added. “Inflation could also be a lot more persistent than we had hoped and in that case we will have to recalibrate how we are going to keep inflation under control.”
