By Lindsay (NYSE:LNN) Dunsmuir
(Reuters) -The U.S. central bank may need to raise interest rates more aggressively to tackle high inflation, New York Federal Reserve President John Williams said on Friday, becoming the latest policymaker to open the door to a bigger rate hike in May.
Asked if he would support a half-percentage-point rise in the Fed's benchmark overnight interest rate at a May 3-4 policy meeting, Williams said the central bank will be guided by economic data between now and then.
"What the right decision is at any given movement will depend on the situation then, but the simple answer to your question is if it's appropriate to raise interest rates by 50 basis points at a meeting, then I think we should do that," Williams told a conference organized by the Central Reserve Bank of Peru and Bank for International Settlements.
"If it's appropriate to do 25, we should do that," he said.
Chief among what the New York Fed chief will be looking at is if there is any easing to supply chain and labor supply woes as the COVID-19 pandemic eases as well as the impact on the economic outlook from Russia's invasion of Ukraine.
"We have a number of questions we don't know the answer to yet ... we need to be nimble and adjust as we go along," Williams said.
Several U.S. central bank officials, including Fed Chair Jerome Powell, indicated earlier this week a renewed sense of urgency in battling a surge in prices that has pushed inflation to a 40-year high, even amid uncertainty about the economic impact of the war in Ukraine.
Williams also noted that low and stable inflation is critical for the success of the Fed's maximum employment and financial stability goals. Inflation, based on the Fed's preferred measure, is currently above 6%, more than three times its flexible average goal.
Such talk has led to the base-case view that the Fed will raise its policy rate by half a percentage point at the May meeting, and that it may also start reducing its nearly $9 trillion balance sheet.
Interest rate futures, which had been pricing in a year-end policy rate of 2.25%-2.5%, now are putting about even odds that rates will end the year even higher, at 2.5%-2.75%. To get there, the Fed would need to raise rates by half a percentage point at three of its next six meetings and by a quarter of a percentage point at the other three meetings.
The Fed's current forecast would raise its benchmark overnight interest rate to almost 2% this year with a view to it rising near to 3% next year, a level which would be designed to put the brakes on the economy and further cool down price pressures.