Fed’s Barkin declines to take 75-basis-point hike off table
FEDERAL Reserve officials stressed their determination to curb inflation, with one official saying nothing was off the table, including raising interest rates by 75 basis points - an option downplayed by Chair Jerome Powell.
“I never rule anything out. So I think anything would be on the table,” Richmond Fed President Thomas Barkin told Market News International in a podcast published on Friday (May 6).
“I’ll just say our pace is pretty accelerated right now, and so if you go to the pace that the chairman suggested, that’s a pretty accelerated pace.”
Powell told reporters on Wednesday the Fed was on track to raise interest rates by 50 basis points at its next two meetings - after officials voted to raise their main policy rate by that amount - but said a larger move was not currently being considered.
“As imperfect as inflation expectation assessments are, if you start convincing yourself that inflation expectations are starting to move, that’s to me the strongest case to try to move faster,” said Barkin, who does not vote on policy this year.
“Demand is very strong and inflation is very high. Both are pointing in the direction that you can raise rates and you can raise rates relatively quickly.”
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The central bank has faced criticism that it is behind the curve in responding to the hottest inflation in 40 years, including from former Fed Vice Chair for Supervision Randal Quarles, who said that it should have acted back in September.
Officials say they want to raise rates this year to neutral - the level that neither speeds up nor slows down the economy - which lies around 2.5 per cent, and potentially go higher if needed.
Minneapolis Fed President Neel Kashkari, probably the central bank’s most dovish official, said earlier on Friday that rates may have to go above neutral unless supply-chain pressures pushing up prices abate.
“Unfortunately, the news from the war in Ukraine and the Covid lockdowns in China are likely delaying any normalizing of supply chains,” Kashkari said in an essay posted on the website Medium.
“If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down,” he wrote.
“If they don’t unwind quickly or if the economy really is in a higher-pressure equilibrium, then we will likely have to push long-term real rates to a contractionary stance to bring supply and demand into balance.”
Labor Department data published earlier in the day showed stronger-than-expected job creation for the month of April and some moderation in wage gains. The yield on 10-year US Treasury securities topped 3.1 per cent, the highest 2018, as investors priced in a more-aggressive path for Fed tightening.
“Right now, by most measures, the job market is very strong, and we’re at a time of very high inflation,” Kashkari said later during a moderated question-and-answer session at the University of Minnesota.
“We know we have to bring inflation back down to 2 per cent, and if the job market softened a little bit, that’s not much of a trade-off.”
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