Fed officials are debating the size and cost of the upcoming interest rate hike.
Federal Reserve officials are sending mixed signals about the upcoming hike in interest rates. St Louis Fed President James Bullard has taken a stance in favor of a third 75-basis-point hike. Kansas City President Esther George has taken a “more cautious tone,” reports Bloomberg.
Bullard, who is one of the most hawkish members of the U.S. central bank, told the Wall Street Journal in an interview published Thursday that he favored going big again. He says: “We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation.”
George has backed the previous hikes and still says the “case for continuing to raise rates remains strong.” She questioned the effect these policies are going to have, noting that it is a question of how fast they’re moving and that they “have to be very mindful that our policy decisions often operate on a lag.”
Why it’s news
The Fed has been raising interest rates to slow the rate of spending and investment, hoping that its efforts will reduce remarkably high inflation, which last rang in at 8.5%, a level not seen since the 1970s. The Fed already hiked interest rates by 75 basis points in June and July, the largest increase in three decades, according to CNBC.
Those who argue for a lower rate increase are concerned that slowing the economy too much will put the U.S. into a recession. Those who argue for higher rates feel that level is needed to bring down inflation.
Backing up a bit
The economy is not acting in a typical fashion, say many economists. Gross domestic product has shrunk for two consecutive quarters, yet the labor market is growing rapidly—two behaviors that usually do not occur simultaneously. Because of these incongruities, there is no consensus on policy, though it does seem everyone agrees that there should be a rate increase.