“We fully appreciate that this is a different situation,” Powell said, adding that in terms of a 50 basis points move, “we really have not addressed those questions, and we’ll begin to address them as we - as we move into the March meeting and meetings after that.”
In May 2000, the Fed under then-Chairman Alan Greenspan raised rates a half point to help reduce too much demand “which could foster inflationary imbalances” – even as inflation was tracking a little above 2%.
Economists who are gaming out what could bringing about a big hike say the exact set of data that would move policy makers isn’t clear, but Fed officials would need to conclude that persistent inflation was feeding into a wage-price cycle and longer-term inflation expectations.
Inflation expectations in five to 10 years time have crept up to 3.1% among consumers surveyed by the University of Michigan -- the highest in more than a decade. But readings from a market-based gauge which measures five-year inflation expectations beginning five years from now are a more moderate 2.21%, which is very close to its 10-year average.
A big hike might be needed “if they felt they needed to send a message, most likely if inflation expectations appeared to be getting out of hand,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co.
Fed officials have tended to favor gradualism. Governor Christopher Waller, in a Bloomberg Television interview earlier this month, pushed back against a March half-point hike. St. Louis Fed President James Bullard has argued that small moves can add up over time. “Shock and awe is almost never a good way to proceed,” he said in a speech in 2010.
“For the Fed to move 50 basis points, I really think they need much more evidence that inflation is accelerating and moving even higher as we get into the spring,” said Diane Swonk, chief economist at Grant Thornton.
This article was provided by Bloomberg News.