Two senior Federal Reserve officials argued Friday that the central bank needs to weigh more aggressive increases in U.S. interest rates to contain the biggest outbreak in inflation in 40 years.
Fed Gov. Christopher Waller and St. Louis Fed President James Bullard said the central bank should consider one or more half percentage point increases in the key U.S. interest rate that influences the borrowing costs for consumers and businesses. Most of their colleagues disagreed on Wednesday. The bank lifted its benchmark fed funds rate for the first time in four years, but only by a quarter point That pushed the rate up from near zero to a range of 0.25% to 0.5%.
The Fed did signal that it plans to lift short-term rates to as high as 2% by the end of 2023 and to 2.8% in 2024, but both Waller and Bullard said that’s not enough.
In an interview on CNBC, Waller said he prefers to “frontload” the increase in interest rates to give the Fed a better chance of reducing inflation as soon as possible.
He favors several 1/2-point rate hikes this year and said the Fed will debate the issue in the months ahead.
Bullard believes the Fed should raise rates above 3% by year end.
High inflation has the Fed on edge. The consumer price index soared to a yearly rate of 7.9% in February — the highest level since 1982 — from just 1.7% a year earlier.
Before Wednesday’s rate hike, Waller had said he supported a half-point increase. He ultimately voted for the smaller move, he said, because of the Russian invasion of Ukraine and possible damage to the U.S. and global economies.
“The economy was basically screaming at us to go 50 [basis points], but the geopolitical events were telling me to go forward with caution,” Waller said.
Bullard was the lone “no” vote at Wednesday’s meeting. He issued a statement on Friday explaining why he dissented, saying the Fed risks its credibility as well as the health of the U.S. economy by moving too slowly to squelch inflation.
Several other senior Fed officials could add their views later on Friday.
Minneapolis Fed President Neel Kaskari is speaking at an energy conference. Richmond Fed President Thomas Barkin will give his own outlook on the economy. And Fed Gov. Michelle Bowman will attend a central bank event with the public.
Of the three, only Bowman is a voting member this year of the Fed panel that sets U.S. interest rates.
In recent trading. U.S. stocks