"Faster is Better" Again Calls for 'Big Step'... Fed Hawkish Remarks Continue

[Asia Economy New York=Special Correspondent Joselgina] "Faster is better." Voices are growing that the U.S. Federal Reserve (Fed) should implement a so-called 'big step' by raising the benchmark interest rate by 0.5 percentage points at once to curb soaring inflation.

James Bullard, President of the Federal Reserve Bank of St. Louis, advocated a more aggressive tightening move in an interview with Bloomberg TV on the 22nd (local time), saying "faster is better." Bullard, a representative hawkish figure within the Fed, opposed the 0.25 percentage point rate hike at the last Federal Open Market Committee (FOMC) meeting and argued for a 0.5 percentage point increase.

In the interview, he predicted that the benchmark interest rate should be raised to 3% by the end of this year. He suggested the neutral interest rate level to be around 2%. He also mentioned that raising it to 3% by the end of this year would help reverse the inflation trend.

President Bullard strongly criticized the current Fed monetary policy for fueling inflation. He also argued that the 0.5 percentage point hike should "be in the mix." Along with this, he emphasized that it is time to start reducing the balance sheet.

Loretta Mester, President of the Federal Reserve Bank of Cleveland, also stated in a speech that Russia's invasion of Ukraine is further worsening inflation and that a larger rate hike may be necessary. President Mester projected the year-end rate level at 2.5%. She mentioned that necessary rate hikes should not be delayed, as doing so would make it easier to respond if the economy unfolds differently than expected.

These remarks drew more attention as they came right after Fed Chair Jerome Powell delivered hawkish comments at the National Association for Business Economics (NABE) conference the day before, saying, "If it is concluded that moving more aggressively is appropriate, we will do so." Earlier, the Fed raised rates by 0.25 percentage points at this month's FOMC meeting for the first time in 3 years and 3 months.

In particular, Chair Powell clearly indicated a willingness to accept some economic slowdown to curb inflation, stating, "We may take firm tightening measures beyond the neutral level."

The current rate is 0.25?0.50%, and there are six remaining FOMC meetings this year. To reach the year-end rate targets they have suggested, a big step of raising rates by 0.5 percentage points at once is essential. The last 0.5 percentage point hike was in May 2000 during the dot-com bubble. Since then, the Fed has maintained a 0.25 percentage point rate hike per meeting (baby step) as if it were a rule.

On this day, Goldman Sachs reflected Chair Powell's remarks and predicted that the Fed would raise rates by 0.50 percentage points each at the May and June meetings. This changed the outlook from baby steps to big steps.

Jonathan Pingel, Chief Economist at UBS, diagnosed in a report that "the likelihood of a 0.50 percentage point hike is increasing." Ralph Axel of Bank of America (BoA) also mentioned that the probability of a 0.5 percentage point rate hike at the May FOMC meeting has risen to 73%, and the possibility of a 0.5 percentage point hike in June is also at 63%.

Amid rate hike expectations, the U.S. 10-year Treasury yield rose further on the day to the 2.38% range compared to the previous day. This is the highest level since 2019.

This content was produced with the assistance of AI translation services.