Fed may go to 6.5%, clearly positive scenario for USD – Commerzbank

Even though his term as president of the Federal Reserve Bank of St. Louis has come to an end, James Bullard has not lost his ability to impress with his comments. Economists at Commerzbank analyze the scenario for the US Dollar.

Nothing seems out of the question

Bullard discussed the scenario of stubbornly high inflation, perhaps even rising again, on the sidelines of the IMF meeting. In that case, he said, the Fed would have to raise its key rate further. To 6% or 6.5%.

So while the whole world is arguing about how fast the Fed will lower its key rate again, Bullard is presenting us with a completely different, clearly USD-positive scenario. Is this odd? Given that (a) the current inflation shock was unique and (b) central banks are operating in an environment – of their own making – that is also unique, nothing seems out of the question. 

Considerations such as Bullard's are probably not outlandish at all but are currently acting as a USD-supportive factor.