Fed official leaves door open for big rate hike in March

Ms Bowman’s comments follow comments made late last week by two of the Fed’s most senior officials, who pushed back against the prospect of a major rate hike at their next meeting, March 15-16.

“I intend to support prompt and decisive action to reduce inflation,” Bowman said in remarks prepared for delivery on Monday at a banking conference in Palm Desert, Calif. “I will take a closer look at the data to judge the appropriate size of the increase. At the March meeting.”

As the Fed indicated at its meeting last month that it was ready to raise interest rates for the first time in four years next month, economic data has pointed to strong recruitment, consumer spending and inflationary pressures.

Those reports prompted investors to place rising prospects in the bond and interest rate futures markets on a bigger rate hike at the Fed’s next meeting. The Fed typically raises rates in quarter-percentage-point increments and hasn’t made a major increase since 2000.

Consumer prices rose 7.5% in January from a year earlier, hitting a new 40-year high. Increased inflation is mainly driven by higher demand for goods, shipping bottlenecks and shortage of intermediate goods such as semiconductors, but prices firmed up in the services sector in January.

Ms Bowman said she supported the Fed’s decision at its meeting last month to signal the need for higher interest rates, and added that economic data since that meeting “moved forward with the process of raising interest rates”. increased the urgency to grow” and significantly reduce the size of the Fed’s $9 trillion asset portfolio. She said she expected additional rate hikes to be needed after the Fed’s March meeting.

Ms Bowman said she expects current levels of “uncomfortably high inflation” to persist through the middle of this year and sees a greater risk that high inflation will continue beyond that. An increasingly tight labor market, which has not sustained serious damage, said the Omicron version of the coronavirus shows wage pressure is unlikely to ease soon, he said.

While the Fed’s policy stance cannot fix poor supply chains, Ms Bowman said higher interest rates could help the economy by reducing demand in an effort to ease the pressure.

Ms Bowman said the Fed’s recent purchase of Treasury securities and mortgage-backed securities, which will expire in early March, is an unnecessary form of stimulus for the economy. In the coming months, she said, “we need to take the next step” by allowing more securities to mature without the Fed allowing them to reinvest in new ones.

Ms Bowman said that although those moves would ease inflationary pressures, she said the Fed would need to take additional measures, which she did not specify in her prepared remarks to tighten monetary policy this year. “My intention would be to take coercive action to help reduce inflation,” she said.

On Friday, New York Fed Chairman John Williams, who is one of Chairman Jerome Powell’s most senior advisors and helps shape the policy agenda, indicated that the Fed would not need to start what the interest rate would be. Hoping to be a series. Increases with more aggressive, half-point moves.

“There’s really no compelling argument that you have to be quicker in the beginning” with the rate hike, Mr Williams told reporters on Friday.

Also on Friday, Fed Governor Lyle Brainard, another member of Mr Powell’s policy-making inner circle, indicated that borrowing costs on loans were already rising in anticipation of several Fed rate hikes this year. Highlighting how the Fed’s recent policy communications have been successful in influencing a range of financial conditions, his comments clearly pushed back against arguments for large, half-cent-point rate hikes.