Philadelphia Federal Reserve President Patrick Harker said Thursday that he expects three or four rate hikes to be appropriate this year as the central bank tackles a gnawing inflation problem.
His thinking, outlined in a live interview on CNBC’s “Closing Bell”, is in line with estimates released by the policy-making Federal Open Market Committee in December.
But while officials then put a pencil on the likelihood of a three-quarters percentage point increase this year in the Fed̵[ads1]7;s reference rate for night loans, Harker said he could be open to even more.
“We need to tackle inflation. It is more persistent than we thought a while ago. I have been away from the ‘perishable’ team for a while now,” he said, quoting the term used by Fed officials to characterize inflation. most of 2021 before it turns towards the end of the year. “I think it’s appropriate to take action this year,” Harker said. “Three [hikes] is what I have written, but four are not excluded in my mind. “
He spoke the same week that Labor Department reports showed that inflation was rising through the US economy. Consumer price inflation is 7%, the highest rate from year to year since June 1982, while wholesale prices in 2021 increased by 9.7% from the previous year, the largest year-on-year movement in data dating back to 2010.
After the December meeting, the FOMC set a schedule that would also close the monthly bond purchases around March. Minutes released later showed that some members also believe that the Fed should start reducing the size of the balance sheet this year, probably by letting some of the bond proceeds roll out each month.
But Harker advocated a slower approach. He believes the Fed should wait until it raises interest rates “for the sake of argument 100 basis points,” or four increases, before beginning to reduce what has become a balance sheet of more than $ 8.8 trillion as a result of buying assets during the pandemic. .
“I do not want to do it right away. I think it’s just the wrong way to go,” he said. “Let’s do them in stages.”
Going slow, he said, would dampen the economy from the shocks that could result from the Fed withdrawing from the simplest monetary policy in its history. He said the Fed could avoid killing recovery if it moves “carefully and methodically. This is why I’m not in camp to raise interest rates and do balance sheet normalization at the same time.”
Earlier in the day, Chicago Fed President Charles Evans also said he sees three rate hikes as the most likely, although he is open to more.
“It’s probably a good opening bid this year depending on how the data rolls out,” Evans told reporters. “There could be four if the data does not improve quickly enough on inflation.”
Neither Evans nor Harker are voters this year at FOMC, although they are allowed to express their opinions at political meetings and their views are part of the committee’s “point plot” of members’ interest rate expectations.