Federal Reserve May Raise Interest Rate by 75 Points, Says Official

Federal Reserve May Raise Interest Rate by 75 Points, Says Official
St. Louis Fed President James Bullard discussing the effect of the new coronavirus on the global and U.S. economies during a presentation in Fort Smith, Ark., on Feb. 28, 2020. Federal Reserve Bank of St. Louis
Naveen Athrappully
Updated:

The U.S. central bank may hike interest rates by up to 75 points due to the high rate of inflation, according to James Bullard, president of the St. Louis Federal Reserve Bank who also added that he does not expect such an increase to occur right away.

Bullard pointed to Fed’s 75-point interest rate hike in 1994 under the leadership of Alan Greenspan which was made in response to a surge in inflation. The decision resulted in an economic boom.

“First of all, that one was successful, and did set up the U.S. economy for a stellar second half of the 1990s, one of the best periods in U.S. macroeconomic history,” Bullard said during an April 18 virtual event by the Council on Foreign Relations (CFR). “And in that cycle, there was a 75 basis point increase at one point. So, I wouldn’t rule it out.”

However, Bullard stressed that a hike of over 50 points is not his “base case” at this point. In March, the Fed had raised interest rates by 25 basis points. Multiple fed officials had supported raising interest rates by 50 basis points.

However, a 25-point increase was finally agreed upon due to the uncertainties surrounding the Russia-Ukraine war. He expects the bank to raise interest rates by 50 points during the Fed meeting on May 3–4.

Bullard pointed out that the first goal of the Federal Open Market Committee (FOMC) should be to get to a neutral rate, which the committee pegs to be at around 2.4 percent.

Bullard calculates that an interest rate of 3.5 percent by the end of 2022 would be ideal. This would require the Fed to raise rates by 50 basis points at each of its remaining six meetings for the year.

He dismissed the possibility of an economic recession and predicted the United States’ growth rate to exceed its long-term trend in 2022 and 2023. The unemployment rate, which is currently at 3.6 percent, was predicted to fall below 3 percent this year.

On April 8, Bullard had suggested that the Fed might increase interest rates by 100 basis points by June. “U.S. inflation is exceptionally high, and that doesn’t mean 2.1 percent or 2.2 percent or something. This means comparable to what we saw in the high inflation era in the 1970s and early 1980s,” he said in a statement.

“Even if you’re very generous to the Fed in interpreting what the inflation rate really is today … you’d have to raise the policy rate a lot.”

However, higher interest rates can result in negative effects. Though banks would profit from higher rates, it can slow down the economy and affect America’s pandemic recovery.

Naveen Athrappully
Naveen Athrappully
Author
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.
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