“You don’t want to overdo the rate increases. A 75-basis-point hike, folks, is huge,” Fed governor Christopher Waller told a conference in Victor, Idaho, on Thursday, the Journal reported. “Don’t say, ‘Because you’re not going 100 [basis points], you’re not doing your job.’”
Until last week, conventional wisdom pointed to another 0.75 point increase, but speculation about a higher-than-expected increase started percolating after Wednesday’s report on June’s consumer price index, which rose at a 9.1% annual pace.
That was the hottest pace since 1981, on soaring fuel, food, housing and commodity prices. Russia’s war in Ukraine has raised energy prices and worsened supply chain disruptions worldwide.
Fed officials have raised interest rates at their past three meetings, beginning with a quarter-point increase in March. They followed with a half-point rise in May and a 0.75-point increase last month, the largest since 1994.
The Fed hasn’t raised rates by a full percentage point since it began using the federal-funds rate as its primary policy-setting tool in the early 1990s.
Kansas City Fed President Esther George said last week that “More abrupt changes in interest rates could create strains, either in the economy or financial markets, that would undermine the Fed’s ability to deliver on the higher path of rates communicated.”
Friday’s University of Michigan consumer sentiment survey said consumers’ long-term inflation expectations dropped to their lowest level in a year.
Wells Fargo chief economist Jay Bryson had also called for the higher rate increase after Wednesday’s CPI report, but said Friday that the case for that had become less compelling, the Journal reported.
Economists surveyed by The Wall Street Journal this month said the chances of a recession within the next 12 months are 49%. About 46% of the economists expect the Fed to raise interest rates excessively and cause unnecessary economic weakness, 12.3% thought it would raise rates too little, and 42% said the Fed will raise rates about the right amount to balance inflation and growth.
Most expect the central bank to raise the fed-funds rate at least above 3.25% by the end of 2022 and to maintain it at or above that level through next year. They said the Fed could make its first rate cut before the end of 2023.