Fed policymakers lean into bigger rate hikes to fight inflation

• Federal Reserve officials are doing little to downplay rising market expectations the U.S. central bank will raise interest rates by half a percentage point in May to curb the surge in inflation, but they also are not dispelling fears the tightening cycle could blow a hole in the economy and labour market. 
• Louis Fed President James Bullard told Bloomberg TV on Tuesday that the Fed needs to move aggressively to keep inflation under control, repeating his call for the central bank to raise its benchmark overnight interest rate above 3% this year. 
• Bullard, who dissented on the Fed's decision last week to raise the federal funds rate by just a quarter of a percentage point from the near-zero level, has made this same point before. But his view appears to be gaining traction. 
• On Monday, Fed Chair Jerome Powell said the central bank must move expeditiously to raise rates and said that nothing would prevent the central bank from raising rates by half a percentage point at the May 3-4 policy meeting. 
• Those comments prompted a flood of bets in futures markets on half-point interest rate increases in May and June. Traders now see the federal funds rate rising to the 2.25%-2.50% range by the end of the year - short of Bullard's view but higher than the 1.9% suggested by Fed forecasts last week. 
• Powell said the economy is strong enough to withstand higher borrowing costs without damaging the labour market and argued the best thing the Fed could do to ensure continued labour market strength is to get inflation under control.

(Source: Reuters)