Top Fed official signals openness to reverting to half-point rate rise

A top Federal Reserve official has said he is “open to any outcome” regarding the central bank’s conundrum over whether to revert to half-point interest rate rises in the face of unexpectedly strong economic data.

Speaking with the Financial Times on Friday, Richmond Fed president Thomas Barkin, who has previously been an advocate of quarter-point rate rises, said he had not made a decision about the forthcoming increase.

However, he said that “on any particular meeting, I’ve always said I’m open to any outcome”, noting that he would “never take something off the table”.

“Last time we chose to move it up 25 [basis points]. Just because you’ve moved it 25 at one meeting doesn’t mean that is what you have to move at every meeting.”

Barkin’s comments echo similar sentiments this week from Fed chair Jay Powell, who indicated his openness to reintroducing half-point rate rises if warranted by incoming data. Reports on inflation and spending are due to be released next week.

They come as the Fed faces a particularly troublesome decision over whether to change course following a series of data releases showing that inflation remains stubbornly high despite the central bank’s historic monetary tightening campaign.

Since last March, the Fed has raised its benchmark rate from near-zero to just below 4.75 per cent, repeatedly moving in half-point and three-quarter-point increments until shifting down to a more traditional quarter-point pace in February.

Barkin’s comments come on the heels of the latest jobs report, which showed the US economy registering yet another month of robust gains. In February, payrolls swelled by more than 300,000, a step down from the roughly half a million positions added the previous month, but still well in excess of the level Fed officials deem to be in line with cooling economic activity.

The stronger-than-expected jobs growth was tempered by figures showing slower wage growth and higher unemployment as more people entered the workforce.

Barkin, who was speaking on the final day before the “blackout period” ahead of the March 21-22 meeting — when officials’ public communications are limited — said February’s jobs data provided a mixed picture.

“It didn’t give much of a signal of demand deceleration, but it did give a stronger signal on the supply normalisation.”

He said he would be watching closely for further evidence as to whether January’s data, which suggested renewed economic momentum and higher price pressures, was a one-off or the start of a more worrisome reacceleration.

“Philosophically, you wouldn’t want to overreact to any one round of data. On the other hand, when you see it happening multiple times, maybe it is a trend.”

He reiterated that he “like[s] the fact that we’re on a more deliberate path here than we were last year”, referring to the more measured pace of recent rate rises, saying such cautiousness gives the Fed time to understand how its actions are impacting the economy.

According to CME Group, the odds of a half-point rate rise have fallen rapidly over the past day, against the backdrop of the implosion of tech lender Silicon Valley Bank, which was shuttered by banking regulators on Friday in the second-largest bank failure in US history.

Asked about the potential implications of SVB’s collapse for the Fed’s monetary campaign, Barkin said he is chiefly focused on economic demand, on which financial stability “may or may not have an impact”.

Barkin, who will not be a voting member on the Federal Open Market Committee until next year, pushed back against the notion that there was an “upward limit” on how high the Fed’s policy rate may need to rise this tightening campaign.

“I would continue to respond until we get inflation under control,” he said, adding that he would not be “surprised” if officials’ projections due to be published later this month will be revised higher than the 5.1 per cent level forecast in December.