The Fed is going to tighten, the only question is how much speed Reuters has

By Howard Schneider and Ann Saphir

WASHINGTON / SAN FRANCISCO (Reuters) – Overwhelmed by the rise in uncomfortable inflation, even the most reluctant US central bankers agree that they should tighten their policy this year; the debate is no longer about how fast it is.

St. Louis Fed President James Bullard said on Thursday that the Fed could raise interest rates as soon as March https://www.reuters.com/markets/us/feds-bullard-says-first-interest-rate-hike-could – It was March 20, 2022 and is now in a “good position” to take even more aggressive steps against inflation as needed.

San Francisco Fed Chairman Mary Daly, a longtime counterpart to Bullard’s hawkishness, said at an extraordinary event that she too expects interest rates to rise https://www.reuters.com/world/us/feds-daly-says -closing-in -inflation-employment-targets-2022-01-06 this year, although he warned that too aggressive a hardening could hurt the labor market.

And this week Minneapolis Faith President Neel Kashkari said he now expects two hikes https://www.reuters.com/markets/us/feds-kashkari-citing-inflation-risks-sees-2-rate-hikes- this -year-2022-01-04 this year, the Fed has pulled back from its long-held view that the rate hike should hold until 2024.

Those in charge of the faith are now effectively in two groups: “those who want to harden politics, and those who want to tighten politics even faster,” wrote Bill Nelson, a former Fed economist who is now chief economist at the Banking Policy Institute.

Although most Fed politicians remain in the first group, he said, “This division would pose risks to the policy, but not downside risks (except for major economic surprises, of course).”

The big change is that a few months ago, Fed politicians could split into roughly three: those who support a faster tightening, those who took a slower approach, and a contingent against a one-year rate hike.

But inflation is hovering more than double the Fed’s 2% target, and the Fed is believing that millions of workers sidelined by COVID-19 will return to work quickly or that supply chain cuts will drive up prices. facilitate soon.

So the hunger for patience has paved the way for the Fed’s continued move, if it slows down, if it slows down, which contradicts the purchase of mortgage-backed finance and mortgage-backed securities aimed at reviving the economy.

Last month, U.S. central banks agreed to end asset purchases in March, and most laid the groundwork for raising interest rates by at least three this year.

Proceedings of Wednesday’s meeting https://www.reuters.com/markets/us/fed-may-need-hike-rates-faster-reduce-balance-sheet-quickly-minutes-show-2022-01-05 Some Fed Politicians they want to do even faster to tighten policy, including reducing the Fed’s $ 8 trillion balance sheet.

On Thursday, Bullard put the case on a more aggressive path.

“The Fed is in a good position to take the necessary additional measures to control inflation, including allowing the issuance of the liabilities balance sheet, increasing the policy rate and adjusting the timing and pace of the subsequent policy rate hike,” Bullard told the CFA Society of St. Luis.

The initial rate hike “as soon as at the March meeting … the subsequent rate hikes during 2022 could move forward or backward depending on the evolution of inflation,” Bullard said.

Speaking at an event at the Central Bank of Ireland, Daly also said that the Fed should raise interest rates this year in the face of a “very strong” labor market and to maintain high inflation, which acts as a “repressive tax”.

However, he said the view of the US central bank should be “measured”.

“If we act too aggressively to offset the high inflation caused by supply and demand imbalances, we will not do much to solve supply chain problems, but we will completely reduce the economy as it will lead to less labor. On the path to creation,” Daly said.

With interest rates as low as the Fed – which has kept its benchmark nightly interest rate close to zero since March 2020 – “a slight rise is not a limitation of the economy,” he said.

Daly added that it is a “very different conversation” to reduce the balance sheet, which would only come after the Fed began normalizing interest rates.