Fed officials Waller and Bullard back another major rate hike in July

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 rate hike in July and perhaps September, even as it slows the economy, according to statements Thursday from two policymakers.

Fed Governor Christopher Waller left little doubt that he believes hikes are necessary if the institution is to live up to its responsibilities and market expectations as an inflation fighter.

“I’m definitely in favor of another 75 basis point hike in July, probably 50 in September, and then we can discuss whether we should go back to 25s,” Waller told the National Association for Business Economics. “If inflation doesn’t seem to be coming down, we need to do more.”

In June, the Fed approved an increase of 75 basis points, or 0.75 percentage point, to the benchmark rate, the largest move since 1994.

Markets generally expect another such move in July and will continue to climb until Fed Funds interest rates reach a range of 3.25%-3.5% by the end of 2022. The increases are an attempt to contain inflation which is 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 get inflation under control, inflation in itself could be a very bad economic outcome.”

St. Louis Fed President James Bullard echoed Waller’s comments in a separate appearance, saying he believes the best approach is to act quickly now and then evaluate the impact the hikes are having.

“I think it would make a lot of sense right now to go for the 75,” said Bullard, a voting member of the Federal Open Market Committee this year. “I’ve advocated and continue to advocate moving to 3.5% this year so we can see where we are and see how inflation develops at that time.”

Both officials said they think recession fears are exaggerated, although Waller said the Fed needs to risk an economic slowdown so it can get inflation under control.

“We’re going to get inflation down. That means we’re going to be aggressive with rate hikes and we may have to risk doing economic damage, but I don’t think given the strong labor market right now it should be that much “, he said.

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