Rapid rate hikes needed, but no Volcker moment By Reuters

© . FILE PHOTO: An eagle graces the facade of the US Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst () – Federal Reserve Governor Christopher Waller said on Wednesday that the US central bank would lower rates should increase aggressively to fight inflation, but not so abruptly that markets come under pressure, destroy jobs and plunge the economy into recession. “I see no value in trying to shock the markets; we’re not in a Volcker-esque moment,” Waller told CNBC in an interview. In the early 1980s, when inflation was last as high as it is today, Fed Chair Paul Volcker raised interest rates by as much as four percentage points at a time. But Volcker, Waller noted, had to fight inflation that had been mounting for six or seven years; the current Fed is dealing with a rise in inflation that only started early last year. “Right now our main concern is to lower these prices and we can do that without triggering a recession,” Waller said, pointing out he favors raising interest rates by half a percentage point in May and “possibly more.” in June and July. “We don’t have to do anything shocking just to cause a shock…if inflation doesn’t cool down, we’ll keep going; we’ll do whatever it takes to bring inflation back down,” he said. “But we can do that in an orderly way without causing a lot of stress in the financial markets.” The Fed raised interest rates for the first time in three years last month, but uncertainty from Russia’s invasion of Ukraine prevented it from raising rates by more than a quarter of a percentage point. Data since then — including a Tuesday report showing consumer prices rose 8.5% in March, the largest annual increase since late 1981 — support bigger future rate hikes, Waller said. “I think we definitely want to get above neutral by the second half of this year and get closer to neutral as soon as possible,” Waller said, pointing out that while inflation is “nearly” peaked, the Fed still needs to tightening policies to reduce demand and remove price pressures. Traders continue to bet that the Fed will raise interest rates by half a point during both its May and June meetings, but in recent days they have pulled back from betting on a third half-point hike this year. Fed Governor Lael Brainard said on Tuesday she was encouraged by a moderation in core inflation in March that could point to some cooling in the future, even as rising food and gas prices pushed aggregate consumer prices up 8.5%. Last week’s futures prices had about a 75% chance that the Fed’s key rate would end the year in the 2.5% to 2.75% range. On Wednesday, traders bet that the end of the year was only slightly more likely than the end of 2022 in a range of 2.25% to 2.5%, around the rate most Fed policymakers consider neutral and could be. achieved with two half-point rate hikes. in upcoming meetings. Waller’s comments contrasted sharply with his former boss, St. Louis Fed President James Bullard, who is in favor of raising interest rates to 3.5% by the end of the year and told the Financial Times it was “fantasy” is to think that inflation can be overcome with more modest moves. To meet Bullard’s goal, half-point increases are needed in all six remaining Fed meetings this year.

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