Two of the Federal Reserve’s most hawkish policymakers on Friday said the central bank needs to take more aggressive steps to combat inflation, and two others said they would be open to it – one of whom just six months ago envisioned a 2022 with no rate increases at all
It still could be that the Fed only needs to raise rates “modestly” above neutral, Minneapolis Fed President Neel Kashkari said in an essay published on the regional Fed bank’s website in which the former dove said he wants to raise rates to 1.75% to 2% this year.
But, he said, the economy may have shifted to a “high-pressure, high-inflation equilibrium,” requiring the Fed “to act more aggressively and bring policy to a contractionary stance in order to move the economy back to an equilibrium consistent with our 2% inflation target.”
Which way the Fed needs to go will depend on what economic data shows over the course of the year, he said.
Fed officials hiked interest rates this week for the first time in three years and signaled that more rate increases are coming as the central bank removes the support provided during the coronavirus pandemic and works to tame inflation at 40-year highs.
Most Fed policymakers see rates rising next year to a level that would restrict growth, forecasts show, but exactly how fast or high rates should rise is a matter of debate.
Earlier in the day, Fed Governor Chris Waller said economic risks around Russia’s war in Ukraine led him to vote in favor of a quarter percentage point rate increase at this week’s meeting rather than dissent in favor of the larger half point increase he had been advocating.
“The data is screaming at us to go 50 (basis points) but the geopolitical events were telling you to go forward with caution,” Waller said on CNBC. But in the months ahead Waller said he would favor a series of half percentage point increases to “front load” tighter policy and have a quicker impact on inflation.
Story continues at: Higher Interest Rates