FX.co ★ Dollar Outlook: Aggressive Monetary Policy Regains Strength

This week, Reuters published an interview with St. Louis Federal Reserve President James Bullard, in which he emphasized that an interest rate hike is necessary to combat inflation in the United States. According to him, given the recent data showing that inflation remains persistent and the overall economy will continue to grow slowly, an interest rate hike is necessary.

Before this interview, last week, Fed Governor Christopher Waller also stated the need for an interest rate hike after the planned increase in May. Waller was resolute in his Friday speech, stating that even after a year of aggressive rate hikes, the U.S. central banks have not been able to achieve the necessary progress in returning inflation to their target level of 2%. Consequently, there is again a need to raise interest rates even higher.

Both officials called for tighter monetary policy over a more extended period. They expressed a view that now differs from the previous one, where they planned a pause in rate hikes after the last May increase. The assumption that the Federal Reserve will stop its consecutive rate hikes at each FOMC meeting from March 2022 has diminished based on Waller and Bullard's most recent statements.

This indicates uncertainty in the Fed's actions for the near future, except for May, and will increase market volatility.