The Marriner S. Eccles Federal Reserve Board Building in Washington, DC
Sarah Silbiger | R
The Federal Reserve is on track for another sharp rate hike in July and perhaps September, even as it slows the economy, two policymakers said on Thursday.
Fed Governor Christopher Waller left little doubt that he believes hikes are necessary if the institution is to fulfill its duties and the market’s anti-inflationary expectations.
“I definitely support another 75 basis point hike in July, probably 50 in September, and after that we can discuss going back to 25,” Waller told the National Association for Business Economics. “If inflation just doesn’t seem to be coming down, we need to do more.”
In June, the Fed approved a 75 basis point, or 0.75 percentage point, hike in its benchmark interest rate, the largest such move since 1994.
Markets broadly anticipate another such move in July and further increases until the fed funds rate reaches a 3.25% to 3.5% range by the end of 2022. The hikes are an attempt to control inflation, which is at its highest level since 1981.
“Inflation is a tax on economic activity, and the higher the tax, the more it suppresses economic activity,” Waller added. “If we don’t get inflation under control, inflation alone can lead us to a really bad economic outcome.”
St. Louis Fed President James Bullard echoed Waller’s comments in a separate appearance, saying he believes it is best to act quickly now and then assess the impact of the rate hikes.
“I think it would make a lot of sense to go with the 75 at this point,” said Bullard, a voting member of the Federal Open Market Committee this year. “I’ve spoken out and will continue to campaign to get to 3.5% this year so we can see where we are and how inflation is going at that point.”
Both officials said they think recession fears are overdone, although Waller said the Fed must risk an economic slowdown to get inflation under control.
“We will lower inflation. That means we will be aggressive on rate hikes and may have to take the risk of causing economic damage, but I don’t think the job market is strong enough right now that it should be that much,” he said.