Economy

WASHINGTON (Reuters) – Canadian Finance Minister Chrystia Freeland stepped well beyond economic policy at a G20 finance meeting on Friday to issue an “impassioned” warning to her Russian counterparts not to invade neighboring Ukraine, two sources familiar with her remarks said.During a contentious G20 meeting hosted by Indonesia, Freeland directly addressed Russian Finance Minister Anton Siluanov and central bank governor Elvira Nabiullina and warned them that Russia would face “crushing” sanctions in the event of an invasion.”If Ukraine is invaded, all of our economies and citizens will suffer,” Freeland told them, according to one of the sources. “The economic sanctions on Russia will be swift, they will be coordinated, they will be crushing. Like-minded countries agree on this course of action. And we are united and resolute.”Freeland’s press secretary, Adrienne Vaupshas, did not respond to a Reuters request for comment on her speech. Freeland participated in the meeting on a web link from Ottawa.The source said that Freeland, previously Canada’s foreign minister, took an opportunity to speak directly to influential Russian policy makers at a critical moment as tensions intensified on the Ukraine-Russian border, where Russia has amassed more than 100,000 troops.”Do not hurt yourselves in doing this,” Freeland said, according to the sources. “Let’s not endanger the collective here, including economically. A second source said that the Russian officials responded to Freeland’s “impassioned” speech by saying that reports on the threat of an invasion were “fake news.”G20 finance officials on Friday argued over communique language describing geopolitical risks to the global economy, deleting a reference to “current” tensions in a final statement after objections by Russia and China.The disagreements over this issue and treatment of debts for poor countries delayed the communique for hours as markets fretted over the prospect of war in Ukraine.Freeland, a fluent Russian speaker who once served as the Financial Times’ Moscow bureau chief and whose grandfather was born in Ukraine, delivered one line in Russian, according to the first source, but said in English: “You may think that for a number of us like-minded democracies here, you may think that democracies are weak. But do not doubt us and do not doubt our resolve.” More

(Reuters) -Federal Reserve officials on Friday squelched what had been rising market expectations for an aggressive initial response to 40-year-high U.S. inflation, signaling that steady interest rate hikes should be enough to do the trick.”I don’t see any compelling argument to taking a big step at the beginning,” New York Federal Reserve Bank President John Williams, the No. 2 official on the central bank’s policy-setting panel, told reporters after a speech.”I think we can steadily move up interest rates and reassess,” he said at the online event. Fed Governor Lael Brainard – President Joe Biden’s nominee to be vice chair at the Fed – said officials will likely kick off a “series of rate increases” at their upcoming meeting in March, followed by decreases in the size of the Fed’s balance sheet “in coming meetings.”Brainard, speaking at a conference in New York, did not give a specific recommendation for the coming meeting, but said recent changes in financial markets, including a rise in mortgage rates, were “consistent with” where the Fed is heading.”The market is clearly aligned with that and brought forward the changes in financing conditions in a way that’s consistent with our communications and data,” Brainard said.Investors in federal funds futures contracts last week began leaning towards the idea the Fed would raise rates a half a percentage point in March. Those expectations have now drifted back, with a quarter point hike now anticipated and six increases in total over the year.In remarks at the conference in New York, Chicago Fed President Charles Evans downplayed the thought the Fed needed to get more aggressive, even though he agreed policy was “wrong-footed” with annual consumer price increases topping 7%.He said he remained convinced inflation would ease on its own.”I see our current policy situation as likely requiring less ultimate financial restrictiveness compared with past episodes and posing a smaller risk,” Evans said at a separate New York event. “We don’t know what is on the other side of the current inflation spike… We may once again be looking at a situation where there is nothing to fear from running the economy hot.”The remarks came at the end of a tumultuous week in which traders piled into, and then backed away from, bets that the Fed would begin a round of rate hikes next month with a bigger-than-usual half-point increase. St. Louis Fed President James Bullard had fanned those expectations with a call for raising rates by a full percentage point by the Fed’s June meeting, a rate path that would require at least one half-point hike between now and then. Policymakers at the central bank have all but said they will start raising borrowing costs next month to quell inflation that has raced past their 2% target, and economists expect the Fed to kick off the longest series of rate hikes in decades.Fed Chair Jerome Powell has been publicly silent since January, so Williams’ and Brainard’s comments provide the best steer yet on the prevailing view at the Fed’s policy-setting core.Powell, however, will have a chance to shape expectations on March 2 and 3 when he gives his semiannual monetary policy update to Congress in hearings announced on Friday by the House Financial Services Committee and Senate Banking Committee.STEADILY, PREDICTABLYThe Fed should begin raising rates next month and, once rate hikes are underway, begin to “steadily and predictably” trim its $9 trillion balance sheet, Williams said. Both actions, he said, will bring demand into better balance with supply. At the same time, he said, other forces should also be bringing down inflation, with supply chains healing and consumers returning to pre-pandemic spending patterns. Williams said policymakers can speed up or slow down the pace of rate increases later as needed. A path in which the overnight federal funds rate moves to a range of 2% to 2.5% by the end of next year makes sense, he said. Williams said he expects real U.S. GDP to grow by slightly less than 3% this year and for the unemployment rate to drop to about 3.5% by the end of the year. He projects inflation as measured by the personal consumption expenditures price index to decline to about 3% and for it to fall further next year as supply challenges improve. More

Powell will deliver his regular semiannual monetary policy update to the U.S. House Financial Services Committee on March 2 and appear before the Senate Banking Committee on March 3.Both hearings will begin at 10 a.m., the committees said on Friday. Fed officials have all but promised to exit their pandemic-era zero-rate policy at their next meeting on March 15-16 to bring down inflation that has shot by the central bank’s 2% target. But it has not been clear how aggressively they will respond.Last week, St. Louis Fed President James Bullard called for a full percentage point worth of rate hikes over the next three meetings, a steeper path than the Fed has followed in decades.This week other officials have sought to signal a gentler approach, with the influential head of the New York Fed, John Williams, on Friday saying he sees little need for the central bank to go big at the start of its rate-hike cycle.Powell, who has not spoken publicly since January, may use his testimony to lay out what he feels is the consensus of the Fed’s 16 monetary policymakers, who will be weighing the risks of an upward inflation spiral against the possibility that tightening policy too hard or fast could choke off economic growth or disrupt financial markets. More

While there are reasons to confirm President Biden’s Fed nominees, economists say concern that the central bank won’t act to rein in inflation aren’t be among them.
It is virtually guaranteed that the Fed will hike interest rates to combat prices even if Sarah Bloom Raskin, Lisa Cook and Philip Jefferson are yet to be confirmed.
The White House and top Democrats have in recent days worried that — without a fully staffed Fed board of governors — the central bank will lose its edge on rising prices.
“I think there are a lot of reasons why these nominees should be approved,” said Mark Zandi of Moody’s Analytics. “But I wouldn’t put fighting inflation at the top of the list.”

Federal Reserve Chairman Jerome Powell leaves a meeting in the office of Sen. Chris Van Hollen, D-Md., in Hart Building on Wednesday, October 6, 2021.
Tom Williams | CQ-Roll Call, Inc. | Getty Images

There may be plenty of reasons to confirm President Joe Biden’s nominees to the Federal Reserve, but economists say concern that the central bank won’t act to rein in inflation shouldn’t be among them.
It is virtually guaranteed that the Fed will hike interest rates next month to combat rising prices even if Sarah Bloom Raskin, Lisa Cook and Philip Jefferson are yet to be confirmed by the Senate, according to three economists who spoke with CNBC.

The Fed is “going to raise rates in March,” said Jason Furman, who served as chair of the Council of Economic Advisers in the Obama administration. “The only question is, do they raise by 25 basis points or 50 basis points?”
The White House and top Democrats have in recent days raised concerns that without a fully staffed Fed board of governors, the central bank will lose its edge on rising prices. But economists suggested the urgency behind that messaging is politically motivated and that the Fed’s chances to quell inflation aren’t tied to this confirmation process.

Democrats on the Senate Banking Committee are frustrated with an ongoing Republican boycott that is preventing them from advancing all five of the president’s Fed nominees, including current board members Chair Jerome Powell and Lael Brainard.
The GOP says the main reason behind their blockade is concern over Raskin, her views on climate policy and her prior work for fintech company Reserve Trust.
But economists who are tracking the inflation outlook say the Fed is equipped to curb inflation even if the politics stays messy.

Furman said lawmakers should take comfort in the fact that the Fed has already telegraphed several rates hikes ahead.
“I don’t think [the nominees] dramatically change the course of monetary policy one way or the other in the near future,” Furman, now a professor of economics at Harvard University, said of Raskin, Cook and Jefferson.
Asked for comment, the White House referred CNBC to a statement made by Treasury Secretary Janet Yellen in January about the president’s candidates.
“I am confident these nominees will build on that progress. I also know that these individuals will respect the tradition of an independent Fed, as they work to fight inflation, support a strong labor market and ensure our economic growth benefits all workers,” Yellen said on Jan. 14.
“I strongly believe that a fully staffed Federal Reserve is critical to our economic success, and I urge the Senate to act swiftly to confirm these nominees,” she added at the time.
The Fed, the globe’s most powerful central bank, is tasked by Congress to maximize employment and keep inflation in check through adjustments to interest rates. It tends to raise borrowing costs when it feels the economy may be overheating, and it cuts rates in times of economic duress.
It slashed rates to near zero in the spring of 2020 as the Covid-19 pandemic swept across the world and forced thousands of businesses nationwide to close. But now, with vaccines widely available and annualized inflation running north of 7%, the Fed is widely expected to make it more expensive to borrow throughout 2022.
Investors say there’s a 71% chance the Fed raises the overnight lending by 25 basis points at its March meeting, while 29% are betting they go big with a 50-basis-point jump, according to the CME Group’s FedWatch tool.
But with Republicans holding up the confirmation of the president’s nominees, some Democrats have suggested in recent days that the Fed could be left without sufficient firepower to curb the steep inflation.
“Everyone understands we need a full Federal Reserve Board — the first one in nearly a decade — to tackle inflation and bring prices down for American families,” Jen Psaki, the White House press secretary, said on Wednesday.
That sentiment was echoed a day later by Sen. Sherrod Brown, the chairman of the Senate Banking Committee that is attempting to recommend the president’s nominees to the broader Senate.
Brown, D-Ohio, also alluded to the ongoing GOP boycott and Republican Sen. Pat Toomey’s demand to hold Raskin back for further questioning.
“Ranking Member Toomey is holding up our fight against inflation because Ms. Bloom Raskin doesn’t remember a phone call from five years ago,” Brown said in a press release on Thursday.
Moody’s Analytics economist Mark Zandi said Thursday that he likes all of Biden’s nominees, but added that he’s certain the Fed will hike next month.

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“Oh yeah. That’s a slam dunk. It’s just a question of how many rate hikes this year, and for the March meeting, whether they should go for a 50-basis-point hike as opposed to a quarter-point hike,” Zandi, chief economist at Moody’s Analytics, said Thursday.
“I think there are a lot of reasons why these nominees should be approved,” Zandi said. “But I wouldn’t put fighting inflation at the top of the list.”
Michael Feroli, chief economist at JPMorgan, went even further.
He suggested Thursday evening that the additions of Raskin, Cook and Jefferson to the Fed’s governing body would make the central bank more “dovish,” or more apt in general to favor easier monetary policy and lower rates.
“The Board and Committee can operate fine without the confirmations,” he wrote in an email. “It’s not like adding three doves will speed up the hiking cycle.”

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NEW YORK (Reuters) – A U.S. stock market, already on edge from a hawkish Federal Reserve and a conflict between Russia and Ukraine, now has another worry: higher oil prices. U.S. crude prices stand at around $91 a barrel after surging some 40% since Dec. 1 and earlier this week touched their highest level since 2014. Prices for Brent crude, the global benchmark, have also soared and are near 7-year highs. Rapidly rising oil prices can be a troubling development for markets, as they cloud the economic outlook by increasing costs for businesses and consumers. Higher crude also threatens to accelerate already-surging inflation, compounding worries that the Fed will need to aggressively tighten monetary policy to tamp down consumer prices. “The stock market would really run into trouble if we went north of $125 per barrel and stayed there for a while because that would overheat high levels of inflation,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “That means that the Fed would have to be a lot more aggressive and that certainly would not be a pleasant scenario for the stock market.” Rising tensions between Russia – one of the world’s largest oil producers – and Ukraine recently helped drive the rally in oil, which had been supported by a recovery in demand from the coronavirus pandemic. Capital Economics analysts said earlier this week that crude oil and natural gas prices would surge if the conflict in Ukraine escalated “even if they fall back relatively quickly as the dust settles.”Elevated oil prices contributed to the rise in U.S. inflation, which grew at its fastest pace in nearly four decades last month: While overall consumer prices rose 7.5% year-over-year in January, the index’s energy component rose by 27%. Each “sustained” $10 increase in the price of oil per barrel adds about 0.3 percentage points to the overall consumer price index, on a year-over-year basis, according to analysts at Oxford Economics. “The largest impact of higher oil prices is on consumer price inflation and it adds further to the pressure for the Fed to be more aggressive,” Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said in emailed comments to Reuters. The benchmark S&P 500 is down over 8% this year while the yield on the benchmark 10-year Treasury note has risen by 40 basis points to over 1.9%. Investors are pricing the Fed funds rate to rise to above 1.50% by the end of 2022, from near zero now, according to Refinitiv’s Fedwatch tool.CONSUMER SPENDING IMPACTRising crude is already raising costs for businesses and drivers. The national U.S. average for gasoline recently stood at $3.48 a gallon, automobile group AAA said earlier this week, up 18 cents from a month earlier and 98 cents from a year ago.As gasoline prices rise, investors are monitoring trends for consumers, whose spending accounts for over two-thirds of U.S. economic activity. Data on Wednesday showed U.S. retail sales increased by the most in 10 months in January, but last week’s consumer sentiment reading came in at its lowest level in more than a decade in early February. “The risk is that if gas prices at the pump start going up that means less discretionary spending for consumers at a time when a lot of their fiscal benefits from the last couple years are fading,” said Michael Arone, chief investment strategist at State Street (NYSE:STT) Global Advisors. Investors are gauging the effect of higher oil on companies’ earnings. Typically, rising oil prices are estimated to lift overall S&P 500 earnings by about $1 per share for every $5 increase in the price of crude, according to David Bianco, Americas chief investment officer at DWS Group, with benefits to energy firms outweighing the drag on earnings of airlines and other companies potentially hurt by higher crude costs. That amounts to about 0.4% of total S&P 500 earnings expected for 2022.The S&P 500 energy sector is up 22% so far in 2022 while fund managers in the latest BofA Global Research survey reported their highest allocation to energy stocks since March 2012. But with oil prices already near seven-year highs, and energy stocks comprising a far lower share of the market than a decade ago, those slim bottom-line benefits may be overshadowed by inflation worries if crude keeps charging higher, some investors said.”Higher oil prices, without a recession, raise S&P profits,” Bianco said. “But not as much as it used to and you definitely don’t want this happening when the Fed is fighting inflation.” More

The debacle over Olympic sponsorship shows how the U.S.-China relationship has turned into a minefield for companies trying to do business in both countries.WASHINGTON — Companies usually shell out for Olympic sponsorship because it helps their business and reflects well on their brands. But this year, with the Olympics in Beijing, Procter & Gamble paid even more to try to prevent any negative fallout from being associated with China’s repressive and authoritarian government.The company, one of 13 “worldwide Olympic partners” that make the global sports competition possible, hired Washington lobbyists last year to successfully defeat legislation that would have barred sponsors of the Beijing Games from selling their products to the U.S. government. The provision would have blocked Pampers, Tide, Pringles and other Procter & Gamble products from military commissaries, to protest companies’ involvement in an event seen as legitimizing the Chinese government.“This amendment would punish P.&G. and the Olympic movement, including U.S. athletes,” Sean Mulvaney, the senior director for global government relations at Procter & Gamble, wrote in an email to congressional offices in August.Some of the world’s biggest companies are caught in an uncomfortable situation as they attempt to straddle a widening political gulf between the United States and China: What is good for business in one country is increasingly a liability in the other.China is the world’s biggest consumer market, and for decades, Chinese and American business interests have described their economic cooperation as a “win-win relationship.” But gradually, as China’s economic and military might have grown, Washington has taken the view that a win for China is a loss for the United States.The decision to locate the 2022 Olympic Games in Beijing has turned sponsorship, typically one of the marketing industry’s most prestigious opportunities, into a minefield.Companies that have sponsored the Olympics have attracted censure from politicians and human rights groups, who say such contracts imply tacit support of atrocities by the Chinese Communist Party, including human rights violations in Xinjiang, censorship of the media and mass surveillance of dissidents.“One thing our businesses, universities and sports leagues don’t seem to fully understand is that, to eat at the C.C.P.’s trough, you will have to turn into a pig,” Yaxue Cao, editor of ChinaChange.org, a website that covers civil society and human rights, told Congress this month.The tension is playing out in other areas as well, including with regards to Xinjiang, where millions of ethnic minorities have been detained, persecuted or forced into working in fields and factories. In June, the United States will enact a sweeping law that will expand restrictions on Xinjiang, giving the United States power to block imports made with any materials sourced from that region.Multinational firms that are trying to comply with these new import restrictions have found themselves facing costly backlashes in China, which denies any accusations of genocide. H&M, Nike and Intel have all blundered into public relations disasters for trying to remove Xinjiang from their supply chains.Explore the Games Propaganda Machine: China has used a variety of tools such as bots and fake social media accounts to promote a vision of the Games that is free of controversy.Aussie Pride: Australia has won more medals than ever before at the 2022 Winter Games. Could the country turn into a winter sports wonderland?At High Speed: The ‘Snow Dream’ train line, built to serve the Winter Olympics, has been a source of excitement — and a considerable expense.Reporter’s View: A typical day in Beijing for our reporters may include a 5 a.m. alarm, six buses, a pizza lunch and lots of live-blogging. For some, it’s the first time back in China in a while.Harsher penalties could be in store. Companies that try to sever ties with Xinjiang may run afoul of China’s anti-sanctions law, which allows the authorities to crack down on firms that comply with foreign regulations they see as discriminating against China.Beijing has also threatened to put companies that cut off supplies to China on an “unreliable entity list” that could result in penalties, though to date the list doesn’t appear to have any members.“Companies are between a rock and a hard place when it comes to complying with U.S. and Chinese law,” said Jake Colvin, the president of the National Foreign Trade Council, which represents companies that do business internationally.President Biden, while less antagonistic than his predecessor, has maintained many of the tough policies put in place by President Donald J. Trump, including hefty tariffs on Chinese goods and restrictions on exports of sensitive technology to Chinese firms.The Biden administration has shown little interest in forging trade deals to help companies do more business abroad. Instead, it is recruiting allies to ramp up pressure on China, including by boycotting the Olympics, and promoting huge investments in manufacturing and scientific research to compete with Beijing. The pressures are not only coming from the United States. Companies are increasingly facing a complicated global patchwork of export restrictions and data storage laws, including in the European Union. Chinese leaders have begun pursuing “wolf warrior” diplomacy, in which they are trying to teach other countries to think twice before crossing China, said Jim McGregor, chairman of APCO Worldwide’s greater China region.He said his company was telling clients to “try to comply with everybody, but don’t make a lot of noise about it — because if you’re noisy about complying in one country, the other country will come after you.”Some companies are responding by moving sensitive activities — like research that could trigger China’s anti-sanctions law, or audits of Xinjiang operations — out of China, said Isaac Stone Fish, the chief executive of Strategy Risks, a consultancy.An NBC production crew in Beijing. An effort to prevent Olympic sponsors, like NBC, from doing business with the U.S. government was cut from a defense bill last year.Gabriela Bhaskar/The New York TimesOthers, like Cisco, have scaled back their operations. Some have left China entirely, though usually not on terms they would choose. For example, Micron Technology, a chip-maker that has been a victim of intellectual property theft in China, is closing down a chip design team in Shanghai after competitors poached its employees.“Some companies are taking a step back and realizing that this is perhaps more trouble than it’s worth,” Mr. Stone Fish said.But many companies insist that they can’t be forced to choose between two of the world’s largest markets. Tesla, which counts China as one of its largest markets, opened a showroom in Xinjiang last month.“We can’t leave China, because China represents in some industries up to 50 percent of global demand and we have intense, deep supply and sales relationships,” said Craig Allen, the president of the U.S.-China Business Council.Companies see China as a foothold to serve Asia, Mr. Allen said, and China’s $17 trillion economy still presents “some of the best growth prospects anywhere.”“Very few companies are leaving China, but all are feeling that it’s risk up and that they need to be very careful so as to meet their legal obligations in both markets,” he said.American politicians of both parties are increasingly bent on forcing companies to pick a side.“To me, it’s completely appropriate to make these companies choose,” said Representative Michael Waltz, a Florida Republican who proposed the bill that would have prevented Olympic sponsors from doing business with the U.S. government.Mr. Waltz said participation in the Beijing Olympics sent a signal that the West was willing to turn a blind eye to Chinese atrocities for short-term profits.The amendment was ultimately cut out of a defense-spending bill last year after active and aggressive lobbying by Procter & Gamble, Coca-Cola, Intel, NBC, the U.S. Chamber of Commerce and others, Mr. Waltz said.Procter & Gamble’s lobbying disclosures show that, between April and December, it spent more than $2.4 million on in-house and outside lobbyists to try to sway Congress on a range of tax and trade issues, including the Beijing Winter Olympics Sponsor Accountability Act.Lobbying disclosures for Coca-Cola, Airbnb and Comcast, the parent company of NBC, also indicate the companies lobbied on issues related to the Olympics or “sports programming” last year.Procter & Gamble and Intel declined to comment. Coca-Cola said it had explained to lawmakers that the legislation would hurt American military families and businesses. NBC and the Chamber of Commerce did not respond to requests for comment.Many companies have argued they are sponsoring this year’s Games to show support for the athletes, not China’s system of government.In a July congressional hearing, where executives from Coca-Cola, Intel, Visa and Airbnb were also grilled about their sponsorship, Mr. Mulvaney said Procter & Gamble was using its partnership to encourage the International Olympic Committee to incorporate human rights principles into its oversight of the Games.“Corporate sponsors are being a bit unfairly maligned here,” Anna Ashton, a senior fellow at the Asia Society Policy Institute, said in an event hosted by the Center for Strategic and International Studies, a Washington think tank.Companies had signed contracts to support multiple iterations of the Games, and had no say over the host location, she said. And the funding they provide goes to support the Olympics and the athletes, not the Chinese government.“Sponsorship has hardly been an opportunity for companies this time around,” she said. More

Speaking at a White House press briefing, deputy national security adviser Daleep Singh also argued that Russia would be unable to replace technology imports from other countries, including China, if the United States imposes tough export controls it has also threatened against the country.”We are converging on the final package,” he said. “All options remain on the table but its probably not going to be the case that you’ll see SWIFT in the initial rollout package,” he added. His comments confirmed a Feb. 11 report by Reuters. Tensions are running high on the Ukrainian-Russia border after Russian-backed separatists announced an evacuation on Friday from breakaway regions in east Ukraine in a conflict the West believes Moscow plans to use as justification for an invasion of its neighbour. Russia denies it plans to attack. The United States has repeatedly threatened tough sanctions against Russia if President Vladimir Putin invades Ukraine, but questions remain about the scope and ordering of potential measures that have been floated by the Biden administration. The sanctions on the table also include export controls on components produced by Russia for the tech and weapons sectors, and sanctions against specific Russian oligarchs. More

Two top Federal Reserve officials said the US central bank should launch a steady string of interest rate increases beginning in March, in a bid to damp demand and bring down inflation.Lael Brainard, a Fed governor who has been nominated to serve as its vice-chair, said on Friday that it would be appropriate for the central bank to “initiate a series of rate increases” beginning at its meeting next month. Financial markets were “clearly aligned” with that move, she added.Brainard’s comments, delivered at an event hosted by the University of Chicago Booth School of Business, echoed those from John Williams, president of the Federal Reserve Bank of New York, earlier on Friday. At an event hosted by New Jersey City University, Williams said he supported the Fed “steadily” raising interest rates from their current near-zero levels starting next month.“With today’s strong economy and inflation that is well above our 2 per cent longer-run goal, it is time to start the process of steadily moving the target range back to more normal levels,” he said.As members of Fed chair Jay Powell’s inner circle, Brainard and Williams’ views carry significant weight as senior policymakers engage in a heated public debate about what the central bank needs to do to counter inflation.Their latest guidance comes amid substantial uncertainty about the pace at which it should be moving away from the ultra-stimulative monetary policy settings that have been in place for two years since the onset of the coronavirus pandemic. Williams told reporters that he does not see a compelling argument for a “big step” in March, but said the tightening process should occur faster than last time, when the Fed first adjusted in December 2015 and then waited a year to deliver a second quarter-point increase.James Bullard, president of the St Louis Fed and voting member on the Federal Open Market Committee, has been one of the most vocal advocates for “front-loading” the interest rate increases. He has called for the federal funds rate to be 1 percentage point higher from its near-zero level by July.Bullard has also previously signalled his support for a larger than usual half-point interest rate rise next month — although he said he would defer to Powell on the issue.Several Fed officials have pushed back on the need for such a move, including Esther George of Kansas City and Loretta Mester of Cleveland. Mary Daly of San Francisco has instead called for a “measured” approach to lifting the fed funds rate to a level consistent with slower economic activity.Market expectations for a half-point interest rate increase in March dropped substantially on Friday after Williams spoke, suggesting investors have revised their view on how aggressive the Fed will be. Roughly six quarter-point increases are pencilled in for this year.Williams acknowledged that inflation, which has reached its fastest pace in four decades, was hovering at a level that was “far too high”, and said monetary policy had an “important role to play” in helping to tame it.“Demand for goods and some services is now far outstripping supply, resulting in elevated inflation,” he said. “With the labour market already very strong, it’s important to restore the balance between supply and demand and bring inflation down.”

Divisions within the Fed are even sharper over the balance sheet, with some officials making the case for outright asset sales of agency mortgage-backed securities and others preferring a more methodical reduction by no longer reinvesting the proceeds of maturing securities. The Fed has not yet specified when the process will begin and how quickly they will proceed.Brainard said it would be appropriate for the Fed to begin reducing its $9tn balance sheet “in coming meetings”, while Williams said the Fed should do so “steadily and predictably”, starting later this year.“Taken together, these two sets of actions — steadily raising the target range for the federal funds rate and steadily bringing down our securities holdings — should help bring demand closer to supply,” he said.Williams’ comments followed remarks from Charles Evans, president of the Chicago Fed, who said at the same Chicago Booth event that the current inflation situation warrants a “substantial repositioning of monetary policy”. But very restrictive interest rates may not be necessary, he added, translating to a “smaller risk” to jobs and growth. More