Fed’s Best Path Is to Hike Rates to Neutral Rapidly, Barkin Says

The Federal Reserve should raise interest rates to the neutral range as quickly as possible and can move above that should price pressures persist, Richmond Fed President Thomas Barkin said.

“The best short-term path for us is to move rapidly to the neutral range and then test whether pandemic-era inflation pressures are easing, and how persistent inflation has become,” Barkin said Tuesday, referring to level of rates that neither speed up nor slow down the economy. “If necessary, we can move further,” he said in remarks at an event organized by the Money Marketeers of New York University.

The Fed’s most recent quarterly projection released in March shows interest rates rising to 1.9% by the end of 2022 and 2.8% by the end of next year, according to the median estimate, while the neutral rate is seen around 2.4%.

Policy makers increased interest rates by a quarter point last month to a target range of 0.25% to 0.5% and signaled they expect to keep raising them all year, while finalizing plans for shrinking their massive balance sheet next month. Central bankers have said this tightening cycle will be faster than in previous economic recoveries -- including by raising rates in larger 50 basis-point increments if necessary -- to curb surging inflation.