NEW YORK: The Federal Reserve (Fed) should raise interest rates to the neutral range as quickly as possible and can move above that should price pressures persist, according to Richmond Fed president Thomas Barkin.

       “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, 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 organised 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 finalising 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.

       US consumer prices rose 8.5% in March from a year earlier, marking the biggest increase since 1981.

       The war in Ukraine has raised food and energy costs, pushing headline inflation further away from the Fed’s target.

       The Fed’s commitment addressing the hottest inflation in four decades doesn’t “necessarily require a hard landing,” said Barkin, who isn’t voting on policy this year.

       “In fact, it might help avoid one by convincing individuals and firms that the Fed is committed to our target, thereby cementing inflation expectations.”

       Minutes of the Fed’s March 15-16 meeting showed that “many” officials would have preferred a half-point move but wanted to wait to see how Russia’s invasion of Ukraine impacted the economic outlook.

       The minutes showed that many said one or more half-point rate increases “could be appropriate” if inflation pressures remained elevated.

       Barkin also said that the Fed needs to be “crystal clear that a growing economy requires stable prices, and that we will remain committed to addressing inflationary gusts.” — Bloomberg