Fed Chorus for March Hike Grows as Mester, Bostic Add Support

(Bloomberg) - Two Federal Reserve officials backed raising interest rates as soon as March and a third urged that the central bank begin winding down its bloated balance sheet sooner rather than later.


Cleveland Fed President Loretta Mester, who votes on policy this year, would support raising the Fed funds rate in March if current economic conditions hold, she said in an interview with Michael McKee and Jonathan Ferro on Bloomberg Television Tuesday.

Atlanta Fed leader Raphael Bostic, speaking in a separate interview with Bloomberg News, also said the central bank may need to consider an increase in March, and start reducing its balance sheet “fairly soon” after liftoff to contain surging inflation.

U.S. central bankers, responding to the hottest inflation in a generation, are hurrying to end pandemic policy support while signaling they’ll raise interest rates sooner than expected. All officials in December indicated they backed raising rates from near zero this year, with a median estimate showing three hikes, compared with nine of 18 officials in September who sought no increase at all in 2022.

Chair Jerome Powell, who speaks at his confirmation hearing before the Senate Banking Committee on Tuesday, can expect questions on whether the Fed is behind the curve in keeping price pressures at bay.

Another speaker on Tuesday, Kansas City Fed President Esther George, said she favors reducing the Fed’s balance sheet early on during the process of normalizing monetary policy.

“My own preference would be to opt for running down the balance sheet earlier rather than later as we plot a path for removing monetary accommodation,” George, who votes on monetary policy this year, told The Central Exchange, a Kansas City group that promotes leadership development for women.

A number of other policy makers, including St. Louis Fed’s James Bullard, have called for a possible March liftoff of interest rates with shrinking the $8.77 trillion balance sheet shortly after that.

Fed policy makers believe a stronger economy and higher inflation could warrant rate hikes “sooner or at a faster pace” than they previously expected, according to minutes of the Dec. 14-15 policy meeting released last week.

By Steve Matthews and Olivia Rockeman


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