The Marriner S. Eccles Federal Reserve Board Building in Washington, DC
Sarah Silbiger | Reuters
The Federal Reserve is well on its way to another sharp rise in interest rates in July and perhaps also in September, even if it slows the economy, according to statements by two political leaders on Thursday.
Fed Governor Christopher Waller left little doubt that he believes increases are needed if the institution is to meet its obligations and market expectations as an anti-inflation fighter.
“I’m definitely in favor of making another 75 basis point hike in July, probably 50 in September, and then we can debate whether to go back down to 25,” Waller told the National Business Economics Association. “If it looks like inflation isn’t going down, we need to do more.”
In June, the Fed approved a 75 basis point increase, or 0.75 percentage points, in its benchmark debt rate, the largest move of its kind since 1994.
Markets expect another such move in July and increases continue until the rate of fed funds reaches a range of 3.25% -3.5% by the end of 2022. The increases are an attempt to control inflation 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 control inflation, inflation alone can put us in a very bad economic outcome in the future.”
The Fed Chairman of St. Louis, James Bullard, echoed Waller’s comments in a separate appearance, saying he believes the best approach is to act quickly and assess the impact the rises have.
“I think it would make a lot of sense to go with the 75 right now,” said Bullard, a voting member of the Federal Open Market Committee this year. “I have advocated and continue to advocate reaching 3.5% this year, then we will be able to see where we are and see how inflation is developing at the moment.”
Both officials said they believe fears of the recession are exaggerated, although Waller said the Fed needs to risk an economic slowdown so it can control inflation.
“We’re going to lower inflation. That means we’re going to be aggressive with rate hikes and we may have to take the risk of causing some economic damage, but I don’t think that’s given the strength of the labor market right now. that this should be so much, ”he said.