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An aggressive half percentage point interest rate hike in May is a “reasonable option” for U.S. central bankers, said New York Federal Reserve President John Williams on Thursday.
Investors and traders have already begun to price-in a half-point rate hike. While interest rate cuts of a half-point are common, rate hikes of that magnitude are relatively rare. The last one came in May 2000.
Comments by Williams, a member of Powell’s inner circle, will only further cement that view.
In an interview with Bloomberg Television, Williams said the Fed needed to raise its benchmark interest rate “expeditiously” to get inflation under control.
Asked about a half-point hike on May 4, Williams said “that’s not a decision we’ve made yet” but added “I think that’s a reasonable option for us because the Federal funds rate is very low.”
Last month, the Fed raised its benchmark rate to a range of 0.25% – 0.5%.
In the interview, William said the Fed may have to get interest rates, adjusted for inflation, “a little bit above” a neutral level to bring inflation down. Interest rates above neutral create a drag on economy growth.
Still, Williams said the Fed can raise its benchmark rate, and shrink its balance sheet, without pushing the economy into recession.
“I think we can achieve a soft landing,” Williams said.
“It’s not going to be easy,” he said.
U.S. stocks
DJIA,
SPX,
were set to open lower on Thursday and the yield on the 10-year Treasury note
TMUBMUSD10Y,
moved up to 2.72%.
