Fed officials agree to rate hike in March, but nothing else

Worsening inflation has sparked a series of opinions from Federal Reserve policymakers on how quickly they should raise interest rates starting at their next meeting in March.

WASHINGTON — Worsening inflation has sparked a series of opinions from Federal Reserve policymakers on how quickly they should raise interest rates starting at their next meeting in March.

James Bullard, president of the Federal Reserve Bank of St. Louis, reiterated his call on Monday for the Fed to take the aggressive step of raising its benchmark short-term rate by a full percentage point by July, 1st. Esther George, President of the Kansas City Fed expressed support for a more “gradual” approach. And the San Francisco Fed’s Mary Daly declined to commit to more than a modest rate hike next month.

Their comments follow last week’s report that inflation jumped 7.5% in January from a year ago, the fastest rise in four decades. Prices also rose 0.6% from December to January, similar to the previous month, suggesting that price gains are still not slowing, as many economists and Fed officials had hoped.

The Fed typically responds to high inflation by making borrowing more expensive, which slows spending and the pace of price increases.

Last week’s consumer inflation report prompted a sharp rise in expectations for Fed rate hikes this year. Some economists are now predicting as many as six or seven quarter-point hikes. That’s far more than the Fed’s December projection of just three rate hikes for 2022.

In their remarks, Bullard and fellow policymaker, Richmond Fed chief Thomas Barkin, noted how the price acceleration has extended beyond automobiles and other pandemic-hit industries. Even measures of inflation that exclude these categories showed strong price increases.

Still, the two officials expressed differing views on how the Fed should react.

“Inflation is very high,” Barkin said in an interview on SiriusXM. “And the most recent readings suggest it’s broader and more persistent. I think it’s time to start and gradually return to pre-pandemic levels.”

Barkin’s use of the term “regularly” suggests he favors a more measured pace than Bullard, who said last week that the Fed may even decide to raise rates ahead of its next regularly scheduled meeting in mid- March.

In a Monday interview on CNBC, Bullard did not repeat that suggestion. But he said “inflation is widening and possibly accelerating.” And he stuck to his call for a one percentage point hike in the Fed’s key rate by July 1. Such a large increase would mean March, May and June rate hikes from the Fed. meetings, one of these increases being equivalent to half a point.

“We need to anticipate more” rate increases, Bullard said. “We were surprised by the rise in inflation. … Our credibility is at stake here.”

No other Fed official has publicly endorsed a half-point rate hike at an upcoming meeting, though investors on Monday were pricing in a 60% chance of such a move in March.

Daly told CBS’ “Face the Nation” on Sunday that such a large increase could hurt the economy by potentially slowing spending too quickly.

“History tells us that the Fed’s policy that is abrupt and aggressive…can actually have a destabilizing effect on the growth and price stability that we are trying to achieve,” Daly said.

Daly expressed support for a rate hike in March, but refrained from backing Barkin’s call for continued increases.

“I see March as an appropriate time to raise the interest rate, and then we have to take all the information into account…and make the right decision at the right time for the economy,” she said.

On Friday, George weighed in on another option being considered by Fed policymakers. She said in an interview with The Wall Street Journal that the Fed should consider selling off some of the Treasuries and mortgage-backed securities that make up its nearly $9 trillion balance sheet.

The Fed said after its last policy meeting last month that it would reduce the size of its balance sheet by letting its investments mature and not reinvesting the proceeds. Going further and selling some of these bonds would hasten the process of Fed holding downs and likely drive longer-term rates higher.

Fed Chairman Jerome Powell did not comment publicly as the latest jobs and inflation reports showed strong hiring and wage growth along with rapid price gains. Powell is awaiting Senate confirmation for a second four-year term. Lael Brainard, a Fed board member who was nominated by Chairman Joe Biden as vice chairman, is also awaiting Senate approval.

The Senate Banking Committee is due to vote Tuesday on their nominations, as well as Biden’s picks for three open Fed board seats: Sarah Bloom Raskin, a former Fed and Treasury official, and Lisa Cook and Philip Jefferson, both economists.

ABC News

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