US Data 'Screaming' for Bigger Rate Hikes
15:55 GMT 18.03.2022 (Updated: 13:29 GMT 06.08.2022)
© AP Photo / Andrew Harnik
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WASHINGTON (Sputnik) - US economic data is “screaming” for bigger half percentage point rate hikes in coming months to stamp out inflation, Federal Reserve Governor Christopher Waller said Friday after the central bank increased rates this week by just a quarter percentage point in its first pandemic-era increase.
"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 during an appearance on CNBC, where he spoke of the fine line the Fed had to tread between robust economic growth and challenges from the Russia-Ukraine conflict in deciding its recent increase.
The Fed’s policy-making Federal Open Market Committee approved a 25-basis point increase at its March 15-16 meeting, its first increase since the outbreak of the COVID-19 crisis in March 2020. It also cautioned that there could be as many as six more rate hikes this year, based on the number of calendar FOMC meetings.
Fed Chairman Jerome Powell, however, reiterated after this week’s rate increase that the central bank will be “nimble” as it tries to balance the fastest economic growth in nearly four decades with inflation, also growing at its most frenetic pace in 40 years. US gross domestic product was up 5.7% last year after a 3.5% contraction in 2020, growing at its most since 1984. Inflation, measured by the Consumer Price Index (CPI), expanded by 5.8% in 2021, its most since 1982.
The Fed has two mandates of aiming for “maximum” employment among Americans with a jobless rate of 4% or below and keeping inflation at 2% or below a year. It has achieved stellar success with its first target, by bringing unemployment down to 3.8% in February from a pandemic- and record-high of 14.8% in April 2020. But its track record has been miserable on its second goal, with CPI growing by 7.9% during the year to February, growing even faster than December's 7%.
Waller, who has consistently pushed for tighter monetary policy and higher fiscal discipline to tame inflation, said the risks from the Ukraine conflict led him to support more dovish colleagues on the FOMC in voting for a subdued rate hike at the March meeting.
But he said he might push for a series of 50-basis point increases at coming FOMC meetings to "front load" a tighter policy that would have a greater impact in tamping down inflation.
The Fed’s policy-making Federal Open Market Committee approved a 25-basis point increase at its March 15-16 meeting, its first increase since the outbreak of the COVID-19 crisis in March 2020. It also cautioned that there could be as many as six more rate hikes this year, based on the number of calendar FOMC meetings.
Fed Chairman Jerome Powell, however, reiterated after this week’s rate increase that the central bank will be “nimble” as it tries to balance the fastest economic growth in nearly four decades with inflation, also growing at its most frenetic pace in 40 years. US gross domestic product was up 5.7% last year after a 3.5% contraction in 2020, growing at its most since 1984. Inflation, measured by the Consumer Price Index (CPI), expanded by 5.8% in 2021, its most since 1982.
The Fed has two mandates of aiming for “maximum” employment among Americans with a jobless rate of 4% or below and keeping inflation at 2% or below a year. It has achieved stellar success with its first target, by bringing unemployment down to 3.8% in February from a pandemic- and record-high of 14.8% in April 2020. But its track record has been miserable on its second goal, with CPI growing by 7.9% during the year to February, growing even faster than December's 7%.
Waller, who has consistently pushed for tighter monetary policy and higher fiscal discipline to tame inflation, said the risks from the Ukraine conflict led him to support more dovish colleagues on the FOMC in voting for a subdued rate hike at the March meeting.
But he said he might push for a series of 50-basis point increases at coming FOMC meetings to "front load" a tighter policy that would have a greater impact in tamping down inflation.
"Going forward that will be an issue — about going 50 — in the next couple of meetings,” Waller said, anticipating resistance from other FOMC members. “But the data is suggesting we move in that direction. I really favor frontloading our rate hikes. (Let’s) just do it, rather than just promise it.”
Most Fed officials see rates rising to around 1.9% by the end of 2022, if the FOMC keeps to 25-basis point hikes at its next six meetings.
Waller did not specify where he would like the bank’s rate to be by the end of the year. But CNBC said he appeared to be targeting a 2.0-2.25% level based on his push for a mix of 25- and 50-basis point hikes.
In projections issued at this week’s FOMC meeting, three policymakers projected rates should end the year at 2.375%, while one projected a closing rate of 2.625%. St. Louis Fed president James Bullard — who also happens to be Waller’s former supervisor — said rates should end the year at 3.125%.
Waller did not specify where he would like the bank’s rate to be by the end of the year. But CNBC said he appeared to be targeting a 2.0-2.25% level based on his push for a mix of 25- and 50-basis point hikes.
In projections issued at this week’s FOMC meeting, three policymakers projected rates should end the year at 2.375%, while one projected a closing rate of 2.625%. St. Louis Fed president James Bullard — who also happens to be Waller’s former supervisor — said rates should end the year at 3.125%.
