“There's reason to believe the economy will do well even as interest rates climb,” Charles Evans, president of the Federal Reserve Bank of Chicago, said at a live-streamed event.
After slashing rates to nearly zero at the height of the coronavirus outbreak, the US central bank approved its first pandemic-era rate hike on March 16, raising rates by 25 basis points, or a quarter point. Many Federal Reserve officials have concluded since that the hike was too tame to rein in inflation galloping at 40-year highs.
The central bank is considering as many as seven interest rate adjustments this year and continuing them through 2023 until inflation drops to its target of 2% a year, from a current 8%.
Most central bank officials are considering up to half point, or 50 basis point, interest rate increases a month. But James Bullard, president of the Federal Reserve Bank of St. Louis, suggested on Monday that the central bank consider at least one 75 basis point, or three-quarter point, increase to expedite the fight against inflation.
Bullard’s suggestion was opposed by Tuesday by Federal Reserve Bank of Atlanta Raphael Bostic, who said it was unlikely that the central bank would veer toward such a sharp hike.
“Any action is possible, though a larger 75 bps hike is not on the radar,“ Bostic said.
But like Evans, Bostic said he expected the economy to do well, notwithstanding the Federal Reserve’s inteerst rate hikes. “Growth will be around 3% this year, and there is momentum to avert a recession,” he added.
After contracting 3.5% in 2020 from disruptions forced by the COVID-19 pandemic measures, the US economy expanded by 5.7% in 2021, growing at its fastest pace since 1982.
However, inflation grew at an even faster rate. The Personal Consumption Expenditure Index, a US inflation indicator closely followed by the Federal Reserve, expanded 5.8% in the year December and 6.4% in the 12 months to February, both also at their fastest in four decades.