Two Federal Reserve officials voiced support Thursday for making a second big rate hike at the central bank’s next meeting, arguing that while there are early signs the economy is slowing somewhat, data on output gross internal exaggerate the extent of any recoil.
The Fed raised interest rates by 0.75 percentage point, often referred to as 75 basis points, at its June meeting, the largest single move since 1994. Central bankers have typically raised interest rates in quarter-turn increments. point in recent decades, with the acceleration coming as the Federal Reserve stepped up its fight against rapid inflation.
Officials are debating how big of a follow-up move they should make at their July meeting, and a growing number have made it clear they would support a second big increase.
“I’m definitely in favor of doing another 75 basis point increase in July, probably 50 in September, and then we can debate whether to go back down to 25, or if inflation just doesn’t seem to be coming. down, we have to do more,” Fed Governor Christopher J. Waller said during an interview with the National Association for Business Economics on Thursday.
“I know there’s a lot of concern about over-tightening leading to a recession, but I just want to remind people that inflation is a tax on economic activity,” Waller said. “Inflation alone could put us in a really bad economic outcome in the future.”
James Bullard, president of the Federal Reserve Bank of St. Louis, also said Thursday that a second big hike would make sense. Officials at the Chicago, San Francisco and Cleveland Fed had already signaled their possible support for a big move, but the new comments come at an important time as global commodity prices sink, concerns mount over the recession and the Fed prepares to meet on July 26 and 27. .
“Personally, I think some of the fears of a recession are a bit overblown,” Waller said, noting that models that forecast a recession tend to put the odds below 50 percent. A Goldman Sachs estimate of the chance of a recession over the next year is 30 percent, much higher than normal but still far from implying that a recession is inevitable.
While the key growth data is failing (gross domestic product fell in the first quarter and could fall again in the second), both Waller and Bullard expressed doubts about the numbers, suggesting they could be revised and not adequately represent the economic situation.
“It’s really strange to think of an economy where there are 2.5 million workers and output is down,” Waller said. “I don’t know what kind of world does that.”
Mr. Bullard said he thought gross domestic income, a measure of money earned on goods and services produced in the United States, and which generally tracks gross domestic product closely, might offer a better snapshot of what’s going on. The two data points have diverged, and the revenue data looks stronger.
“Although it’s a bit geeky, I think it’s a very important topic right now,” Bullard told reporters on a call, after noting that “everyone is talking about two negative quarters of GDP, this is a recession.”