Fed hawks say more dramatic interest rate hikes may be needed to tame inflation

FILE PHOTO: Federal Reserve Building Appears in Washington, USA, January 26, 2022. REUTERS / Joshua Roberts

March 18, 2022

By Howard Snyder

(Reuters) – Two of the Federal Reserve’s most aggressive politicians on Friday said the central bank should take more aggressive measures to fight inflation, with one saying it would support a bigger move this week if it were not for the war. in Ukraine and the Other saying that geopolitical dangers should not hinder them.

Fed Governor Chris Waller said the financial risks surrounding the war in Ukraine had led him to vote in favor of raising interest rates by a quarter of a percentage point at this week’s meeting instead of disagreeing with a larger increase by half a point.

“Our data is calling for 50 (key points) to go, but the geopolitical events were telling you to be careful,” Waller told CNBC. In the coming months, however, Waller said he would favor a series of increases by half a percentage point to have a tighter “forward-looking” policy and a faster impact on inflation.

Fed officials raised interest rates this week for the first time in three years and indicated more interest rates were coming as the central bank cuts off support provided during the coronavirus pandemic and worked to tame inflation to a 40-year high. .

St. Louis Fed Chairman James Bullard, who disagreed with this week’s move in favor of a half-point increase, said on Friday that officials would have to raise the Fed’s lending rate to more than 3% this year to cover increased inflation. Following Wednesday’s move, the Fed’s target interest rate is now 0.25-0.50%.

He said he was not only in favor of a half-point increase this week, but also interest rate hikes at a rate that would require a half-point increase in five of the Fed’s six remaining meetings this year.

“The US economy has proven particularly resilient” to the pandemic and geopolitical risks, Boulard said in a statement, explaining his disagreement.

With core inflation hovering above 6%, tripling the Fed’s 2% target, Bullard said more Fed action was needed “to manage the US macroeconomic situation prudently”.

Although most Fed executives are seeing six additional rate hikes in the quarter, seven of the current 16 Fed policymakers, such as Bullard, believe interest rates should rise further by the end of the year.

To tackle inflation faster, Waller said the central bank would have to raise more of it in the coming months. “I really prefer to pre-load our interest rate hikes… Just do it instead of just promising it,” he said.

Although he did not specify where he would like to see the federal interest rate target end at the end of the year, Waller said he would prefer to exceed the 2% to 2.25% level that he considers to be neutral for the economy.

(Report by Howard Schneider, Written by Jonnelle Marte, Edited by Andrea Ricci)

Fed hawks say more dramatic interest rate hikes may be needed to tame inflation

Source link Fed hawks say more dramatic interest rate hikes may be needed to tame inflation

Back to top button