(Bloomberg) - Federal Reserve Bank of Richmond President Thomas Barkin said he’s open to raising interest rates by half a percentage point at the Fed’s policy meeting in May, depending on how strong the U.S. economy is at that time.
“I’m open to it,” Barkin said Wednesday in a Bloomberg Television interview with Michael McKee. “I think the question -- and we will make this decision when we get to the meeting in May -- is how strong does the economy still look in terms of its ability to take rate increases and how high is inflation persisting. I’m looking at both of those and we’ll make our call in May.”
Markets see a better than even chance that the Federal Open Market Committee will raise interest rates by a half point when it next meets May 3-4 to counter inflation at the highest level in four decades.
Fed officials raised their benchmark lending rate off zero this month with a quarter-point increase. Since then, several policy makers, including Philadelphia Fed President Patrick Harker on Tuesday, have said they are open to hiking by a more aggressive half point at their May meeting. Chair Jerome Powell has said he would favor a bigger move if necessary to bring price pressures under control.
Barkin said it might take interest rates going above neutral -- the level which neither speeds up nor slows down the economy which policy makers estimate lies around 2.4% -- to bring down inflation.
“I think there is a real chance that is true,” he said. “As we get closer to neutral we can make that call.”
The consumer price index soared 7.9% in February, the most since 1982; the Fed’s 2% inflation target is based on a separate gauge, the personal consumption expenditures price index, which rose 6.1% in the 12 months through January.
While supply chain difficulties associated with the Covid-19 pandemic were initially blamed for price rises, Fed officials have been taken by surprise by continuing increases and a broadening of price pressures. They have worried that a continuing rise in prices would take hold in the public’s expectations for inflation.
In the Fed’s March interest rate projections, officials’ median projection was for the benchmark rate to end 2022 at about 1.9% -- in line with traders’ bets at that time but higher than previously anticipated -- and then rise to about 2.8% in 2023.
By Steve Matthews
