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The Fed: Fed’s Williams open, in general, to 50 basis point rate hikes, but won’t discuss next meeting in May

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New York Federal Reserve President John Williams said Friday there was nothing wrong with 50 basis point interest rate hikes in theory and he would support them if appropriate.

But in a conversation sponsored by the Bank of International Settlements and the central bank of Peru, Williams stopped short of talking about the Fed’s next meeting in early May.

“It’s March,” Williams said.

But stepping back, Williams said it was clear the Fed needed to get its benchmark interest rate up to more “normal” levels. The speed of coming interest rate hikes will have to depend on the economic data, he said.

“If it’s appropriate to raise interest rates by 50 basis points at a meeting, then I would think we should do that. If it’s appropriate to do 25, we should do that. I don’t see any reason not to do one or the other,” Williams added.

This week, some more hawkish Fed officials have been actively advocating for some 50 basis point or half percentage point hikes, while others, like Williams, have not ruled them out.

Chicago Fed President Charles Evans said Thursday that there are some messaging challenges if you do a 50 basis point hike at a meeting.

“How do you deal with the communications of it if you do 50, what does it mean for the next one?” Evans asked.

“Once you start talking about different paces, I think it just opens up the question of where are you headed if you’re going so fast,” he added.

Economists at leading investment banks have taken the discussion of possible 50 basis point rate hikes this week as a signal the Fed was going to be more hawkish this year than had previously been expected.

Economists at Citigroup
C,
+0.83%

now see the Fed funds rate hitting 2.75% by the end of this year, higher than the Fed’s own forecast last week that the central bank would raise the Fed funds rate to 2% by December.

Economists at Bank of America
BAC,
+1.58%

now see the Fed raising its benchmark interest rate up to a range of 3% to 3.25% by May 2023.

Traders in the Fed fund futures market now see the benchmark rate rising to a range of 2.5% to 2.75% by December, according the CME Group’s FedWatch tool.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.462%

has jumped to 2.495% in trading on Friday.

The Dow Jones Industrial Average
DJIA,
-0.07%

soared 200-plus points at the open but lost most of the gains by midday.

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