Fed Policymakers Nod to March Rate Hike as Inflation Generates More Noise

By Lindsay Dunsmuir and Ann Saphir

Jan 13 (Reuters) – Federal Reserve Governor Lael Brainard on Thursday became the latest and most senior central bank official to signal that interest rates will rise in March to combat inflation that is eroding the value of recent wage increases for workers and putting civil servants under the political spotlight.

The Fed «has projected several rate hikes over the course of the year,» Brainard told the Senate Banking Committee, which is considering her nomination by US President Joe Biden to become central bank vice chairman. .

«We’ll be in a position to do that … as soon as our purchases are complete,» he said, referring to a separate Fed asset purchase program, opening the door to a possible rate hike at the Fed’s monetary policy meeting. Fed from March 15 to 16. The Fed in December announced plans to buy its last tranche of government securities in February, earlier than it had projected just a month earlier.

With inflation rising 7% year over year in December, the fastest pace in nearly 40 years, Fed policymakers are keen to do more, sooner, with rate hikes expected in the coming months and plans to rapidly cut the Fed’s nearly $9 trillion balance sheet taking shape.

«We are clearly in a situation where the monetary policy stance is wrong» against inflation, Chicago Fed Chief Charles Evans said Thursday at an event hosted by the Milwaukee Business Journal.

Evans called officials’ recent projection of three quarter-percentage-point hikes in 2022 «a good opening offer,» but added «it could be four if the data doesn’t improve fast enough.»

It was a common refrain this week, as officials appeared to confirm plans for a credit cost hike in March and raised the possibility of a fourth hike in 2022.

This week is the last before Fed officials enter a «quiet» period ahead of their January 25-26 monetary policy meeting, a session in which they would lay the groundwork for a «lift-off» in March. from the near-zero rate maintained through the crisis caused by the coronavirus pandemic.

«My forecast is that we would have a 25 basis point increase in March, barring any changes in the data,» Philadelphia Fed President Patrick Harker said at a virtual event hosted by the Philadelphia Business Journal.

«I definitely see rate hikes coming, even in March,» San Francisco Fed Chief Mary Daly said Wednesday night. Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard and Cleveland Fed Chief Loretta Mester also signaled a March rate hike on Wednesday.

This week, Fed Chairman Jerome Powell also endorsed a firm monetary policy tightening this year, arguing that a strong economy no longer «needs nor wants» as much stimulus despite the surge in COVID-19 cases due to to the omicron variant.

With that move now firmly on the table, several, including Brainard on Thursday, have also signaled that they want to start cutting the Fed’s huge balance sheet this year. That would also eliminate expansionary policy and reduce downward pressure on long-term credit costs.

(Reporting by Lindsay Dunsmuir, Jonnelle Marte and Ann Saphir, Editing in Spanish by Manuel Farías)