Aurelia Butler

(Reuters) – How fast and far the U.S. Federal Reserve will raise interest rates once it begins doing so in March will depend on what happens with the economy and, more specifically, with inflation, Richmond Fed President Thomas Barkin said on Monday. “I’d like the Fed to get better positioned, and I think we’ve got a good part of the year to get there,” Barkin told CNBC in an interview. “I think how fast we get there just depends on how the economy develops. … I am just going to be looking to see how inflation develops through the year.” More

Chair Jerome Powell declared last week that officials were ready to raise rates at their next meeting to curb the strongest inflation in four decades. But he declined to give specific guidance on the policy path, apart from saying that support should be removed steadily and policy had to be nimble in responding to incoming economic data.His reticence has opened the door to hiking at every meeting this year if needed. But Powell went out of his way to indicate that officials had not made up their minds and his colleagues on Monday echoed that caution.“You always want to go gradually, in the economy. It is in no one’s interest to try to upset the economy with unexpected adjustments,” Kansas City Fed President Esther George told the Economic Club of Indiana. “But I do think the Federal Reserve is going to have to move deliberately in its decisions to begin to withdraw accommodation.” George, one of the central bank’s more hawkish officials, is a policy voter this year.Investors have increased bets on the pace of increases since Powell spoke, shifting to roughly five this year versus the three that officials forecast in December. But Wall Street economists have split over how time the Fed will act, penciling in as many as seven hikes as well as the risk that officials lift rates by 50 basis points — the first increase of that magnitude since 2000 — to keep price pressures at bay.San Francisco Fed chief Mary Daly, who has been one of the more dovish officials at the central bank, said rates could rise as early as March. But she denied the Fed was behind the curve and cited a number of risks facing the economy in addition to the ongoing pandemic, including headwinds as fiscal support fades.“When you’re trying to get an economy from extraordinary support to one that’s going to just gradually put it on to a self-sustaining path, you have to be data-dependent,” she told Reuters Breakingviews in a live-streamed interview. “But you also have to be gradual and not disruptive.”What Bloomberg Economics Says…“Our baseline is for the Fed to hike five times, each 25 basis points, this year, and balance-sheet runoff to begin in July. Our in-house rule for the Fed’s reaction function flags an upside risk for a 50 bps-hike in March followed by five 25 basis-point hikes in the rest of the year.”– Anna Wong, chief U.S. economistCiting the Fed’s December forecasts, Daly noted that four increases this year — if that is what transpires — would lift rates to 1.25% and “that is quite a bit of tightening, but it is also quite a bit of accommodation.”Officials have pivoted to tightening policy after acknowledging that price pressures have failed to fade as expected. Atlanta Fed President Raphael Bostic told Yahoo Finance that his outlook called for three increases in 2022 and he did not favor raising rates by 50 basis points in March.“We’re not set on any particular trajectory. The data will tell us what is happening,” he said, adding that if month-on-month prices changes moderated from current high levels by the late spring or early summer, he might not need to adjust his rate forecast at all.“I would adjust my policy to maybe not be as aggressive in terms of raising interest rates” if inflation decelerates more than expected, he added.©2022 Bloomberg L.P. More

Clarifying comments she made earlier to Reuters Breakingviews, Daly said she does not know whether rates will need to be increased three times this year, as most Fed policymakers in December thought would be appropriate. If they do rise that much, she said, “we will have tightened a lot and we will still have considerable accommodation in the system.”But, she added, “I don’t want to predetermine what that level should be, because I really do see the two-sided risks we’re facing, and so I want to be data dependent … We have to have our options open, right? And if more is needed, more will be done. If less is needed, less will be done, but we have to have our options open.” The Fed last week signaled its readiness to join its most serious battle with inflation in decades, beginning by raising interest rates at its next meeting, March 15-16, and signaling it could begin to trim its nearly $9 trillion balance sheet as soon as midyear. Consumer prices jumped 7% last year, more than double the Fed’s 2% target. “No one’s comfortable” with such high inflation, Daly said, noting that price gains are broad-based and no longer confined largely to pandemic-hit sectors. Still, she said, “we are not behind the curve, we are not behind the curve at all.”Wages are rising, but there is no sign of that pushing up prices in a 1970s-style wage-price spiral, she said. The challenge for the Fed, Daly said, is to remove its “extraordinary accommodation” and allow the economy to stand on its own, without removing so much that it undercuts economic growth.”Do we need to adjust the policy rate?” Daly asked. “Absolutely.” More