Fed's Barkin Backs 50 Or 75 Bps Rate Hike In July

Federal Reserve Chair Jerome Powell's guidance that the U.S. central bank will most likely raise interest rates by 50 or 75 basis points in July is "reasonable," Richmond Fed President Thomas Barkin said on Tuesday, even as he cautioned against the bank moving so fast that it damages the economy.

"I am pretty comfortable with what Jay (Powell) said. ...He gave a range that feels pretty reasonable," Barkin said during a webinar held by the National Association for Business Economics.

The Fed is poised to deliver another bigger-than-usual rate hike at its next meeting in July as it seeks to tame inflation running at more than three times its 2% goal, with fears growing that the economy will tip into recession as a result.

Barkin repeated that the Fed will have to make monetary policy restrictive, but said data and judgment would guide the central bank as its tackles "high, broad based and persistent" inflation.

"You really don't want to inadvertently break something and lead to a significant pullback in the reactions of economic actors that you weren't anticipating. It is a fine balance and I think judgment plays a huge part," Barkin said, noting that he is focused on trying to get to positive forward looking real, or inflation-adjusted, rates.

Last week on the heels of another report that showed price pressures escalating more than expected, the Fed raised interest rates by three-quarters of a percentage point to a range of 1.50%-1.75%. It now forecasts borrowing costs will more than double that level over the next six months.

Several policymakers, including some previously more wary about sparking a sharp rise in unemployment, have backed the new whatever-it-takes approach.

Powell's pledge of an unconditional war against price increases that are draining American pocketbooks will be scrutinized by U.S. lawmakers on Wednesday and Thursday during two days of regularly scheduled hearings, held semi-annually, before Congress.

Barkin said he remains hopeful that a lot of pandemic era price pressures will ease and inflation start to ease in short order, but gave no timeframe for when it might return to the central bank's goal.

Research released by the San Francisco Fed on Tuesday showed supply issues account for around half of the run-up in current inflation levels, underscoring the difficulties Fed policymakers face in taming inflation due to factors outside their control.

Critics contend that the Fed has been too slow to act to bring down inflation which it argued last year was transitory. The more aggressive fight needed to quash surging price pressures will lead to a downturn as it cools demand across the economy, they added.

The clamor for a repeat of last week's 75 basis point increase in borrowing costs, the biggest hike in more than 25 years, has already begun from some quarters. Fed Governor Christopher Waller has called for the same sized move at the next meeting in July, saying the central bank is now "all in" on restoring price stability.