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Fed’s Bullard: Markets understood dot plot message

Yahoo Finance's Jennifer Schonberger joins the Live show to discuss the Fed's dot plot, Fed's Bullard's remarks on the state of the market, and inflation.

Video Transcript

BRAD SMITH: We've been hearing a lot of Fed speak following the Federal Reserve's decision to hike rates another 75 basis points this month. Today, we heard from St. Louis Fed Chief James Bullard, who says that the Fed expects more tightening this year based on the dot plot. Let's bring in Yahoo Finance's Jen Schonberger. Jen, you've been tracking Bullard's comments. What sticks out to you right now?

JENNIFER SCHONBERGER: Good morning, Brad. That's right. In an ongoing Q&A right now, with HSBC's global chief economist, St. Louis Fed president Bullard saying that he's encouraged that inflation expectations are coming down. He pointed to those five-year breakevens, though he says the market can also sometimes be wrong. So he says the work is, of course, not done yet. You mentioned the dot plot. He says there is still more work to do to maintain credibility and do this in a reasonable time frame.

He also talked about QT. He says his preference is to wait and see how things develop for at least six months or longer to make sure that it's doing what the Fed thinks, which is to put upward pressure on the long end of the yield curve. Of course, these comments coming as the Bank of England temporarily decided to restart its quantitative easing, given turmoil in the government bond market over there, though, that not seemingly impacting Fed officials' thinking here in the US.

He also mentioned, again, that it's important not to repeat what happened in the 1970s with inflation. And not just on the inflation front, but also on the economy front. There were, like, four recessions he pointed to during that time period culminating in the 1982 recession. To that end, he feels that the Fed really has a lot of room to hike rates here, given where the unemployment rate is.

The Fed projecting 4.4% next year on unemployment. He says that really will bring our economy, our unemployment rate back to the mean. So he is encouraged that we could still-- the Fed could still steer the ship without creating too steep of a recession or perhaps even avoiding one.

Now, separately, just want to bring to your attention the Federal Reserve just coming out with some news moments ago that six of the nation's largest banks are going to participate in a pilot climate scenario analysis exercise. Basically, banks are going to be tested under different hypothetical climate scenarios to help the Fed design rules to police climate change and how that could potentially impact banks and financial stability. This is separate from the stress tests I want to note. And the banks that are participating include Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo. Guys.

JULIE HYMAN: All right Jen, thanks very much. Appreciate it.