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

FILE PHOTO: The Federal Reserve building is seen in Washington, DC
FILE PHOTO: The Federal Reserve building is seen in Washington, United States on January 26, 2022. REUTERS/Joshua Roberts

March 18, 2022

By Howard Schneider

(Reuters) – Two of the Federal Reserve’s most dovish policymakers said on Friday the central bank must take more aggressive steps to fight inflation, with one saying he would have backed a bigger move this week had it not been for the wars in Ukraine and the US others would have said geopolitical risks shouldn’t hold them back.

Fed Governor Chris Waller said the economic risks surrounding the war in Ukraine prompted him to vote in favor of a quarter-point rate hike at this week’s meeting, rather than opposing the larger half-point hike he had advocated.

“The data is screaming at us to go to 50 (basis points), but geopolitical events have urged you to proceed with caution,” Waller said on CNBC. But in the coming months, Waller said he would prefer a series of half a percentage point hikes to “preload” tighter monetary policy and have a quicker impact on inflation.

Fed officials hiked rates for the first time in three years this week, signaling more hikes are on the way as the central bank lifts support provided during the coronavirus pandemic and works to tame inflation to 40-year highs.

St. Louis Fed Chairman James Bullard, who opposed this week’s action in favor of a half-point hike, said Friday officials should raise the Fed’s federal funds rate to more than 3% this year to catch up on elevated inflation . After Wednesday’s move, the Fed’s target rate is now 0.25-0.50%.

He said he prefers not just a half-point hike this week, but rate hikes at a pace that would require a half-point hike at five of the Fed’s six remaining meetings this year.

“The US economy has shown particularly resilience,” Bullard said in a statement justifying his opposition to the pandemic and geopolitical risks.

With inflation above 6% by a key measure, three times the Fed’s 2% target, Bullard said further action by the Fed was needed “to prudently manage the US macroeconomic situation.”

Although most Fed officials see six more quarter-point rate hikes this year, seven of the Fed’s current 16 policymakers, like Bullard, believe rates should hike even higher by year-end.

To counteract inflation more quickly, Waller said the central bank should pack more of it into the coming months. “I really prefer to bring forward our rate hikes… just do it instead of just promising,” he said.

Although he did not specify where he would like to see the federal funds rate target by the end of the year, Waller said he would prefer to get above the 2% to 2.25% level, which he sees as neutral for the economy.

(Reporting by Howard Schneider; Writing by Jonnelle Marte; Editing by Andrea Ricci)

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DUSTIN JONES

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