https://finance.yahoo.com/news/fed-hawks-seek-half-point-144205276.html

(Bloomberg) — The Federal Reserve’s pivot to fighting inflation was cast into sharp relief on Friday as the central bank’s hawkish wing urged a faster pace of policy tightening and a onetime dove said there could be a case for aggressive action.

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In the first wave of comments by officials following Wednesday’s quarter-point rate hike, St. Louis Fed President James Bullard said he favored raising rates above 3% by the end of the year while Minneapolis’s Neel Kashkari — who had argued for patience in raising rates from zero — said he’d been wrong on inflation and now backed action.

Officials on the Federal Open Market Committee voted 8-1 this week to lift the target range for their main policy rate to 0.25%-0.5% and forecast a sequence of increases that would raise it to 1.75%-2% by year-end. The projections, known as the dot plot, also showed that almost half of the 16 current policy makers wanted to move faster.

Chair Jerome Powell has the task of building a consensus on the policy-setting committee and wields the most sway over the ultimate course of U.S. monetary policy. With doves now joining hawks in arguing for action to curb the hottest inflation in 40 years, it will be easier for him to steer policy in a more aggressive direction if needed.

Bullard, who dissented in favor of a half-point hike and implementing a balance-sheet reduction plan this week, identified himself as the official with the highest dot for 2022 and said the central bank’s reputation was on the line if it failed to act with sufficient urgency.

“The combination of strong real economic performance and unexpectedly high inflation means that the committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation,” Bullard said in a statement to explain his dissent. “The committee will have to move quickly to address this situation or risk losing credibility on its inflation target.”

Speaking a short while later, Governor Christopher Waller said the war in Ukraine was the reason he didn’t push for a half-point increase at this week’s meeting, but that was definitely on the table for upcoming meetings.

“The data is basically screaming at us to go 50, but the geopolitical events were telling you to go forward with caution. So those two factors combined pushed me” to support the 25 basis point increase, he said in a televised interview on CNBC. “Going forward, that will be an issue whether to think about going 50 in the next couple of meetings or not. But the data certainly seem to suggest that we move in that direction.”

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.

Kashkari, writing in an essay published on his bank’s website, said that he favors raising interest rates to a 1.75%-2% range by the end of 2022, in line with the median projection of Fed officials. He also said that if the judgment turns out to be that the U.S. economy is now in a “high-pressure, high-inflation equilibrium, then the FOMC will need to act more aggressively and bring policy to a contractionary stance.”

At stake is whether the Fed can achieve a rare soft landing for the world’s largest economy. Tighten too slowly and it risks allowing inflation to run out of control, requiring even tougher action. Shift too quickly and the central bank could roil markets and tip the economy into recession.

Complicating the job: Russia’s invasion of Ukraine has sent the cost of fuel, food and metals racing even higher, raising fears of 1970s-style stagflation by posing threats to prices, growth and financial-market stability.

Another policy maker, Richmond’s Thomas Barkin, said Friday he was “very open to half-point moves,” if price pressures fail to ease or inflation expectations move up meaningfully, while arguing the Fed should strike a balance.

“We normalize rates to contain inflation, but if we overcorrect, we can negatively impact employment,” he said. “We have some time to get to a neutral position. Inflation and employment are still being heavily influenced by pandemic-era supply and participation pressures — and more recently, the war on Ukraine.”

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