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Fed’s Barkin says businesses would welcome higher interest rates


The U.S. economy is poised to raise interest rates to control runaway inflation, Richmond Federal Reserve Chairman Thomas Barkin said Monday.

With the Fed poised to start raising rates in March and beyond, Barkin told CNBC in a live interview that tighter monetary policy is appropriate. However, he did not commit to central bank aggressiveness.

“I wish the Fed was better positioned. I think we have a good chunk of the year to get there,” he said on “Closing Bell.” “I think how fast we go just depends on how the economy develops.”

Financial markets, however, expect the Fed to act quickly.

Current futures prices indicate a strong possibility of five increases of 0.25% in the benchmark short-term lending rate. There’s even about a one-in-three chance the Fed could hike six times, according to calculations by CME via its FedWatch tool. Bank of America economists said Friday they expect seven increases this year.

These expectations are accompanied by inflation at its highest level in almost 40 years. The Fed is using interest rates to raise the cost of money and slow the pace of the economy, which has seen its fastest single-year growth since 1984 a year ago.

Barkin said in his experience, at least for those in the business community, rate increases will be welcome.

“As I speak to participants in the economy, what I hear is that they actually want us to do something now about inflation. They would like us to return to at least a normal position in interest rate matter and that we’re not simulating more demand on top of normal levels,” he said. “So I’m not hearing a lot of resistance to that.”

He spoke on the same day that two of his fellow regional presidents, Mary Daly of San Francisco and Esther George of Kansas City, also voiced support for a tougher policy. Part of this tightening is due to interest rates. The other part deals with the Fed’s monthly bond purchases, which are due to end in March, and the holdings of those bonds, which exceeded $8 trillion.

Following their meeting last week, Fed officials said they expected to aggressively reduce assets on their balance sheets.

In a speech she gave earlier today to the Economic Club of Indiana, George said the faster balance sheet removal could allow the Fed to enact fewer rate hikes.

“What we do on the balance sheet will likely affect the path of policy rates and vice versa,” George said. “For example, more aggressive action on the balance sheet could allow for a shallower path for the policy rate.”

Daly told a Reuters forum that the Fed was “not at all behind” when it comes to fighting inflation. However, she also said it was time to start easing the most accommodative monetary policy in the history of the central bank.

“If the economy is progressing the way I see it progressing, then clearly it can stand on its own two feet, that we don’t need to provide the same level of extraordinary accommodation…that we have provided during the pandemic and that we have provided for the past two years,” she said.

None of the Fed officials would commit to a timeline, though many on Wall Street believe each of the Fed’s seven remaining meetings this year will be “live” or subject to policy changes.


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William

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