FOMC members wanted the Fed to hike rates by 50 basis points last month
Tiana Lowe
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Last week, I made the case that the Fed is more likely to ramp up its rate hike campaign now that Joe Biden has poached its dovish vice chair. The newly released minutes from last month’s Federal Open Market Committee meeting confirm that several members wanted to increase the federal funds rate by half a percentage point, twice the 25 basis point hike they ultimately approved.
“A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount,” the minutes from the last FOMC meeting read. “The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way.”
THE FED KEEPS MAKING THE SAME MISTAKES
Consider what has happened since the start of February. Both consumer and producer price index inflation in January came in higher than expected, with CPI increasing three times the amount the Fed considers acceptable. The Bureau of Labor Statistics also revised CPI estimates from the fourth quarter of 2022 upwards, and job numbers have continued to come in much more robust than wanted by the Fed, which continues to treat the Phillips Curve as monetary gospel.
Now, consider these underlying economic factors in conjunction with personnel signaling from the Fed. Lael Brainard is due to depart the Fed to direct Biden’s National Economic Council prior to March’s FOMC meeting, and the more hawkish members of the Fed have deployed a full-court press to push more aggressive rate hikes. Neel Kashkari has specifically cited January’s jobs growth as a reason the terminal rate should hit 5.4%, and James Bullard confirmed that he was considering a 50 basis point hike come next month.
If multiple FOMC members considered a 50 basis point hike when deflation seemed much more robust, there’s a serious chance the Fed actually follows through on ramping up the rate hikes in March. If next month’s CPI report is as disappointing as February’s, maybe even markets will begin to price in the pressure.