This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.

Please create a password or click to receive a login link.

Please enter your password or get a login link if you’ve forgotten

Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We'd like our readers to start paying for Daily Maverick

More specifically, we'd like those who can afford to pay to start paying. What it comes down to is whether or not you value Daily Maverick. Think of us in terms of your daily cappuccino from your favourite coffee shop. It costs around R35. That’s R1,050 per month on frothy milk. Don’t get us wrong, we’re almost exclusively fuelled by coffee. BUT maybe R200 of that R1,050 could go to the journalism that’s fighting for the country?

We don’t dictate how much we’d like our readers to contribute. After all, how much you value our work is subjective (and frankly, every amount helps). At R200, you get it back in Uber Eats and ride vouchers every month, but that’s just a suggestion. A little less than a week’s worth of cappuccinos.

We can't survive on hope and our own determination. Our country is going to be considerably worse off if we don’t have a strong, sustainable news media. If you’re rejigging your budgets, and it comes to choosing between frothy milk and Daily Maverick, we hope you might reconsider that cappuccino.

We need your help. And we’re not ashamed to ask for it.

Our mission is to Defend Truth. Join Maverick Insider.

Support Daily Maverick→
Payment options

Fed on Track for Half-Point Hike in May as Hawkish Pivo...

Business Maverick

Business Maverick

Fed on Track for Half-Point Hike in May as Hawkish Pivot Deepens

The Marriner S. Eccles Federal Reserve building in Washington, D.C. Photographer: Samuel Corum/Bloomberg
By Bloomberg
14 Apr 2022 0

Federal Reserve officials are reinforcing expectations they’ll raise interest rates by a half percentage-point next month, accelerating a hawkish pivot to curb the hottest inflation in four decades.

“I think that’s a reasonable option for us because the federal funds rate is very low,” Federal Reserve Bank of New York President John Williams said Thursday in a Bloomberg Television interview. “We do need to move policy back to more neutral levels.”

The New York Fed chief’s remarks are the latest to underline U.S. central bank’s plans to lift rates back to levels that prevailed before the pandemic, or even higher. In addition to the quarter-point move they made last month, that implies around 200 basis points of tightening over the course of the remaining six Fed meetings this year to get rates to around 2.5%.

Consumer prices in U.S. post largest annual advances since early 1980s

That message has been clearly heard by investors. Interest-rate futures are almost fully priced for a half-point hike at the Fed’s May 3-4 meeting, when officials could also announce a start date for beginning to shrink their nearly-$9-trillion balance sheet.

Williams voiced confidence in the Fed’s ability to soft-land the economy — cool price pressures without forcing a steep rise in unemployment — and said the Fed’s forward-guidance communications around its policy plans have already got the ball rolling.

“We’ve seen a dramatic, significant movement in yields and financial conditions over the past several months and that’s already positioning policy well to get supply and demand back into balance,” he said.

U.S. consumer prices rose 8.5% in March from a year earlier, marking the biggest increase since 1981. The war in Ukraine has raised food and energy costs, pushing headline inflation further away from the Fed’s 2% target.

U.S. central bankers, by their own admission, were slow to react and are now viewed as moving with determination to catch up. But the consensus among policy makers starts to fray over how much further above what they judge to be a “neutral” level for interest rates they’ll need to go, if at all.

Fed doves argue they don’t have to commit to doing more than getting rates to neutral until they’ve seen how the economy responds to the tightening that’s already been anticipated in financial markets.

They also point to balance sheet roll-off as another factor cooling the economy. Minutes of their March meeting showed officials backing a plan to shrink it by $95 billion a month.

Read More:

Fed Governor Lael Brainard, who is awaiting Senate confirmation to become vice chair, said the combination of higher rates and a smaller balance sheet will lower inflation to 2% over time. She also cited shifts in market expectations as evidence that the Fed’s forward guidance has already tightened financial conditions.

“In terms of exactly what the right pace of that set of increases in the policy rate from meeting to meeting, I don’t really want to focus on that,” she said Tuesday.

“By moving expeditiously to a more neutral posture, it provides the committee with optionality in either direction,” Brainard added, introducing an element of two-way risk to rates in case the economy starts to stutter.

Some economists have voiced concern that the Fed will tip the economy into recession by jacking rates up too high.

“It’s now clear they will hike by 50 basis points in May,” said Thomas Costerg, senior U.S. economist at Pictet Wealth Management. “The risk of policy mistake is rising since it is not clear at all the economy can digest several hikes of 50 basis points.”

But hawks like James Bullard of St. Louis want to get rates above 3% this year and call it wishful thinking to suggest inflation will subside without stepping hard on the policy brake.

Fed Governor Christopher Waller, who was previously Bullard’s head of research in St. Louis before joining the Fed Board in Washington in 2020, said the economy could handle half-point hikes in May and possibly June and July as well.

“I don’t see any value in trying to shock the markets; we are not in a Volcker kind of moment,” he told CNBC in an interview Wednesday. “We will do what it takes to get inflation back down, but we can do that in an orderly way without causing a lot of financial-market stress.”


Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted