Fed board member advocates raising interest rates by 1 point by midyear

A member of the Federal Reserve Board (Fed, the US central bank), Christopher Waller believes that it is appropriate for the BC to raise interest rates in the United States to between 1% and 1.25% per year until the middle of this year, a since US inflation is “considerably” above the target of 2% per year and the job market is buoyant.

In a speech at the University of California event on Thursday night (24), the official said that this one percentage point increase could come in “a few forms”, such as a 25 basis point increase in interest rates in all the next four months. Federal Open Market Committee (FOMC) meetings.

But if the January consumer spending price index — to be released at 10:30 a.m. ET — and February readings from the consumer price index (CPI) and jobs report ( payroll) indicate an “excessively heated economy, a strong case can be made for a 50 basis point increase in March,” he said.

“In this state of the world, adopting a 50-point hike would help convey the Committee’s determination to deal with high inflation, about which there should be no doubt,” Waller said, noting that it is possible that risks linked to the war between Russia and Ukraine to force a more cautious monetary stance. “But that is yet to be seen,” he added.

As for the reduction of the Fed’s balance of assets, Waller advocated that the process be initiated no later than the July meeting of the Fomc and that it occur more quickly than the last time it was carried out, between 2017 and 2018, since the American Central Bank and the markets already have an idea of ​​how the reduction works.

As for the size of the monthly reduction in assets, Waller said they are likely to be larger than in 2017 and 2018, as the Fed’s balance sheet is also larger, with about $9 trillion in assets.