Lindsay (NYSE) Dunsmuir, and Ann Saphir

(Reuters) -The Federal Reserve needs to act aggressively to bring down high inflation, and doing so could very well include a half-percentage-point rate hike at its next policy meeting in May, two U.S. central bank policymakers said on Wednesday.

Loretta Mester from Cleveland Fed stated that “I would love to front-load some,” when she was asked by reporters about the direction of interest rates this year. It’s crucial that we move that rate higher and it will be better for us to do so sooner than later, given what might happen in the second half.

Mary Daly from San Francisco Fed, who shared her urgency, said that she was open to supporting such a move, if data warrants, and noted that inflation was everybody’s main concern.

I have all the pieces. At an event hosted by Bloomberg, Daly stated that 50 basis points is enough.

Daly was often more cautious about policy tightening than her peers. And her willingness to allow a greater-than-usual rate rise in May shows how the Fed is growing more concerned that high inflation — which has exceeded 2% central bank target — requires prompt and concerted action.

Jerome Powell, Fed Chair, earlier this week stated that the central banking would “expeditiously” raise interest rates in this year. However, he left the door open for a higher hike at its May 3-4 policy meeting.

Markets have taken that view on board, with traders pricing in two half-percentage-point hikes in coming meetings, and a year-end policy rate range of 2.25%-2.5%.

BALANCE SHEET REDUCTIONS

On Monday Powell spoke at the National Association for Business Economics Conference. He also stated that May could be the first of the reductions in central bank’s almost $9 trillion balance. The figure ballooned over the COVID-19 epidemic as policymakers tried to support the economy.

Trimming the Fed’s portfolio of Treasuries and mortgage-backed securities would put further downward pressure on inflation, providing what Daly said on Wednesday would be the equivalent of at least one quarter-percentage-point rate hike this year.

She stated that the data would tell her whether 50 basis point, 25 basis points and the balance sheets are the correct recipe, or 50 basis-points with the balance sheets.

Last week, Fed policymakers projected seven rate increases for 2022. This view was supported by Daly who said that it includes some “front loading” of tightening.

Daly stated, “We are prepared to do everything necessary to guarantee price stability and to meet all other challenges,”

Mester stated that reporters are not in danger of the Fed raising interest rates or beginning to shrink its balance sheets at the same policy meeting.

Mester noted that financial markets would handle the move, adding that “I believe given the current situation and communications made by Chair Powell about the balancesheet process, I don’t have any concerns that it could be destabilizing.” To control inflation, we must do everything possible with our two policy instruments.

Mester reiterated her belief that 2.5% was the right level of the federal funds rates at the close of the year. This would mean “some” 50 basis-point rate increases.

Daly indicated that the Fed’s overnight benchmark rate of interest will most likely have to rise above 2.5% by next year.