Fed governor calls for half-point rate hikes
Federal Reserve Governor Christopher Waller said Friday that the central bank should raise interest rates at a more aggressive pace to deal with rising inflation.
In an interview with CNBC’s “Squawk Box” On Friday morning, Waller said he favored raising the Fed’s base interest rate range by 0.5 percentage points “at one or more meetings in the near future.”
“I’m really supportive of the anticipation of our rate hikes, that we need to do more hosting withdrawals now if we’re going to have an impact on inflation later this year and next year,” Waller said. .
Waller was among eight of nine members of the Federal Open Market Committee — the Fed’s panel responsible for setting monetary policy — that voted for a 0.25 percentage point rate hike on Wednesday, the first hike since 2018. The Fed’s base interest rate range had been set between 0 and 0.25% since March 2020, when the bank cut rates and began buying billions of dollars of bonds each month to boost the economy.
Waller said he initially preferred a 0.5 percentage point hike this week, with inflation nearly three times higher than the Fed’s preferred annual target. Even so, he opted for a more modest rise given the uncertainty caused by the war in Ukraine.
“The data is basically screaming at us to go 50 [basis points], but geopolitical events were telling you to proceed with caution,” Waller said. A basis point is one hundredth of a percent.
“So those two factors combined made me not advocate a 50 basis point hike and support the 25 basis point hike that we have adopted,” he said.
Fed officials have forecast six more hikes this year, one for each of the remaining six FOMC meetings if the panel rises just 0.25 percentage points each time.
When the Fed raises its base interest rate range, it leads to higher borrowing costs for credit cards, car payments, mortgages and business loans. Higher interest rates aim to slow the pace of the economy and the rate of price increases, but may be accompanied by higher unemployment.
Waller was among several Fed officials to speak about the bank’s efforts to fight inflation on Friday.
James Bullard, Chairman of the Federal Reserve Bank of St. Louis, said on Friday that the Fed should raise its base interest rate range to 3% by the end of the year, which would require increases of 0.5 percentage points at each of the next six meetings of the Federal Open Market Committee. Bullard was the lone dissenter from Wednesday’s rate hike, saying the Fed should have raised 0.5 percentage points.
Minneapolis Federal Reserve Chairman Neel Kashkari also acknowledged in a Friday post on Medium that he had misjudged how long and by what extent inflation would exceed the Fed’s target. He said he now backs the Fed hike six more times this year after expecting just one hike in 2022 in September.