Fed policymakers map out shift to 'measured' hikes

Reuters

Published May 18, 2022 04:07PM ET

Updated May 18, 2022 09:30PM ET

By Ann Saphir

(Reuters) -Two U.S. central bankers say they expect the Federal Reserve to downshift to a more measured pace of policy tightening after July as it seeks to quell inflation without lifting borrowing costs so high that they send the economy into recession.

It's not clear if that view - mapped out on Tuesday by Chicago Federal Reserve Bank President Charles Evans and on Wednesday by Philadelphia Fed chief Patrick Harker - marks a consensus at the Fed for how to bring down the highest inflation in 40 years.

But it does suggest that while policymakers broadly back using half-point rate hikes to get short-term borrowing costs to a range of 1.75%-2% over the next two months, support for sticking to that pace beyond July may be limited.

Evans on Tuesday told an audience in New York City that he expects to transition to "measured" rate hikes after an initial burst of policy tightening. In the Fed lexicon, "measured" means quarter-point rate hikes.

On Wednesday Harker gave a similar assessment, telling the Mid-Size Bank Coalition of America that after July, "I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target."

As he spoke, the S&P 500 and the Dow Jones Industrial Average were tumbling and ended with the sharpest one-day loss in nearly two years.

"I still am in the camp that we can have, if not a soft landing, a safe landing," Harker said, noting the strength of the labor market, with nearly two jobs open for every American jobseeker, and an unemployment rate of 3.6%.

The U.S. economy will likely grow between 2% and 3% this year, he said, adding, "this economy can withstand a measured, methodical approach to tightening financial conditions."