The Fed raised its rates little because of Ukraine but will pick up the pace (governor)

The conflict in Ukraine prompted the US central bank (Federal Reserve, Fed) to increase its rates by only a quarter of a percentage point on Wednesday, but one or more major increases, of half a point, will be needed this year, a governor of the agency estimated on Friday.

Economic data, and in particular the surge in inflation, “strongly encourage us to increase rates by 50 basis points (...) but geopolitical events suggest that we move forward with caution,” Christopher Waller, one of the Fed's governors, explained Friday to CNBC.

“These two factors combined led me not to struggle for a 50-base-point hike at this meeting, and to support the 25-point hike (ndlr: a quarter of a percentage point) that we adopted,” he summarized.

The Fed's Monetary Policy Committee met Tuesday and Wednesday and to try to ward off inflation increased its guideline rates for the first time since 2018.

The benchmark rates, which since March 2020 were between 0 and 0.25%, are now in a range of 0.25 to 0.50%.

But Waller argues that the Fed will have to resort to more aggressive increases in future meetings, if it wants to “have an impact on inflation later this year and next.” That implies increases of half a percentage point “in one or several meetings in the near future.”

By the end of 2022, rates should be around their level considered “neutral”, which Waller places between 2 and 2.15%.

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