Federal Reserve could raise rates by half a point if needed, official says

The US Federal Reserve is not ruling out raising rates by half a percentage point if inflation remains high, Fed official Raphael Bostic said in an interview with the Financial Times.

The chair of the US central bank, Jerome Powell, signaled this week the Fed plans to hike interest rates in March, telling reporters the recovery in the world's largest economy is strong enough that it can handle higher borrowing costs.

Powell declined to give details on the size of the planned increase, saying only that the Fed would be flexible. It typically raises rates by a quarter of a percentage point; a half-point increase would be uncommon.

In an interview with the Financial Times published Saturday night, Bostic, who heads the Federal Reserve Bank of Atlanta, said that "every option is on the table for every meeting."

He still expects three quarter-percentage-point hikes by the end of the year.

But "if the data say that things have evolved in a way that a 50 basis point move is required or (would) be appropriate, then I'm going to lean into that." Fifty basis points equal half a percentage point.

Bostic stressed that he would be "comfortable" with the idea of making a decision "in successive meetings," suggesting there could be a rate hike at each of the seven remaining meetings between now and the end of the year.

The Fed's key rates were lowered to a range of 0 per cent to 0.25 per cent in March 2020 in an attempt to mitigate the shock to the economy from the Covid-19 pandemic.

With growth back on track, the priority now for the Fed is to slow inflation, including by raising rates.

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