Federal Reserve Expected to Raise Rates at Half Percentage Increments to Help Cool Inflation

The Fed folks are freaking out. 

Inflation is battering consumers, home owners, businesses, travelers, and agriculture, industrial, and manufacturing concerns, to name a few. Fuel prices remain at record levels, generalized inflation is spilling over to the rest of the economy, and continuing supply chain pressures (especially from China amid a new coronavirus crackdown) are crimping the availability of a variety of foods, consumer products, and basic industrial inputs, etc. As noted preciously, it's getting so bad consumers are even cutting back on basic necessities.  

People are hot and mad too. Inflation is the number one concern of regular Americans. And depending on how fast the Fed pulls the switch, there's some alarm that a recession could be coming down the pike.

Things aren't likely to cool off before the November midterms either. President Biden's so rattled and confused he's been cursing at members of the White House reporting pool.  

At the Wall Street Journal, "Fed Signals Faster Pace of Rate Increases, Bond Runoff Likely":

Minutes show central bank officials in March spelled out plan for shrinking $9 trillion asset portfolio next month to help cool inflation.

Federal Reserve officials signaled they could raise rates by a half-percentage point at their meeting early next month and begin reducing their $9 trillion asset portfolio as part of their most aggressive effort in more than two decades to curb price pressures.

Minutes from the Fed’s March 15-16 meeting, released Wednesday, showed that many officials last month were prepared to raise rates by a half-point but opted for a smaller, quarter-point increase because of concern over the fallout from Russia’s invasion of Ukraine.

Stocks fell and bond yields rose in the midst of expectations of a more aggressive Fed policy tightening process than previously anticipated. The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, climbed to 2.606%, a three-year high, from 2.554% on Tuesday and 2.409% on Monday. The Nasdaq Composite dropped 2.2%, while the S&P 500 fell 1% and the Dow Jones Industrial Average was down 0.4%.

Officials last month approved their first interest rate increase in more than three years, raising their benchmark rate to a range between 0.25% and 0.5%. They also penciled in a series of additional rate increases this year to take rates closer to 2%, with inflation having surged to a four-decade high.

The minutes revealed for the first time how officials expect to shrink their asset holdings much faster than they did last decade, which would serve as another key tool for tightening monetary policy. Officials neared agreement on a plan that, after a roughly three-month ramp-up, would allow up to $95 billion in securities to mature every month without being replaced.

The Fed’s plans have sent tremors through the mortgage market, where the average 30-year fixed-rate mortgage rose last week to 4.9%, the highest rate since late 2018, according to the Mortgage Bankers Association.

In the three weeks since they last met, many Fed officials have indicated that they could support raising rates by a half-percentage point instead of the traditional quarter-point at their next meeting. The Fed hasn’t raised rates at consecutive policy meetings since 2006 and hasn’t raised rates by a half-point since 2000.

Investors in interest-rate futures markets now anticipate half-point increases at the Fed’s next meeting, May 3-4, and at the following gathering, in June.

On Tuesday, Fed governor Lael Brainard, who is awaiting Senate confirmation to serve as the Fed’s vice chairwoman and has previously been an influential voice warning against prematurely pulling back stimulus, underscored in a speech the importance of reducing high inflation.

Ellen Meade, a former Fed economist who is now a policy consultant, said that based on those remarks there is no reason not to expect a half-point increase. “It would have been an opportunity to push back at this point in time,” Ms. Meade said. “She really laid out the progressive case for why inflation fighting needs to be front and center.”

Consumer prices rose 6.4% in February from a year earlier, according to the Fed’s preferred gauge, the Commerce Department’s personal-consumption expenditures price index. Core prices, which exclude food and energy, climbed 5.4%. Those readings were the highest in around four decades.

Fed officials a year ago described higher inflation as transitory. They backed away from that characterization last fall, as the labor market healed rapidly and price pressures broadened to a range of goods and, more important, labor-intensive services.

Still, as recently as January, the Fed had expected inflation to diminish this spring as supply-chain bottlenecks improved. The war in Ukraine and potential lockdowns in China to deal with more-contagious variants of the coronavirus have ended any expectation of near-term relief from improving supply chains.

“That story has already fallen apart,” Fed Chairman Jerome Powell said March 21. “To the extent it continues to fall apart, my colleagues and I may well reach the conclusion we’ll need to move more quickly. And if so, we’ll do so.”

The central bank is still counting on inflation slowing later this year as supply-chain problems ease and as more workers return to labor markets. But unlike last year, Mr. Powell said the central bank could no longer set policy by forecasting that such relief would materialize.

“As we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief,” he said...