He has long urged the central bank to withdraw its stimulus quickly in order to ensure it has the flexibility to raise interest rates next year should inflation turn out to be even more persistent than expected.
“Many have said that once you get into 2022 inflation will moderate. There is a case to be made for that, but there’s also a case to be made that it won’t moderate and may go in the other direction [due to] additional supply constraints coming from international sources now because of the Delta variant,” he said.
To give the Fed “optionality” to raise interest rates in 2022, the Fed should wrap up its asset purchases by the end of the first quarter, Bullard added. Another reason to taper quickly is the “incipient housing bubble” that might be fuelled in part by the Fed’s ultra-loose monetary policy, Bullard said. Prices have surged in recent months, with the latest national home data from S&P CoreLogic Case-Shiller pointing to a 18.6 per cent increase from June 2020.