Fed's Harker Says High Inflation Calls for More Rate Hikes

Reuters2022-10-21

(Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday the central bank is not done with raising its short-term rate target amid very high levels of inflation, while adding it was likely the central bank will find space next year to pause the tightening process and take stock of how its rate increases are impacting the economy.

Given the current inflation situation, “the Fed is actively trying to slow the economy,” and “we are going to keep raising rates for a while,” Harker said in a speech text. Against the current federal funds rate target of between 3% and 3.25%, “given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year,” Harker said.

But the point is approaching where the central bank will be able to step back and see how the impact of its rate rise cycle is affecting the economy, the official said. “Sometime next year, we are going to stop hiking rates,” Harker said, adding “at that point, I think we should hold at a restrictive rate for a while to let monetary policy do its work.”

Harker is not a voting member of the rate setting Federal Open Market Committee this year, but he will have a vote next year. The Fed has been raising its short-term target rate aggressively this year to lower price pressures, and it is widely expected to boost the cost of short-term borrowing again at its early November meeting, very likely by another large sized 0.75 percentage point.

Fed officials have penciled in around a 4.6% stopping point for rate rises by next year, but some policy makers and outside forecasters believe a higher rate will be needed given the persistence of inflation.

Harker warned in his speech that while inflation surged very quickly, lowering it will take time, which creates uncertainty for monetary policy.

He noted that if inflation doesn’t cool, “we can tighten further, based on the data” next year. He said that as a policy maker, “what we really need to see is a sustained decline in a number of inflation indicators before we let up on tightening monetary policy.”

Harker said in his remarks that his economic outlook does not appear to entail a recession. Growth will slow this year on high inflation and tighter financial conditions, with flat activity for 2022 and a 1.5% rise in the gross domestic product in 2023.

What is now a 3.5% unemployment rate will likely rise a full percentage point by next year and then fall to 4% in 2023, the official said. That means “labor markets will stay quite healthy” as the Fed works to lower inflation, Harker said.

Against the current 6.2% year-over-year increase in the August personal consumption expenditures price index -- the Fed’s preferred inflation measure -- Harker sees inflation at 6% this year, around 4% next year and 2.5% by 2024.

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Comments

  • Hayleyxn
    2022-10-21
    Hayleyxn
    Ok
  • Simonnov
    2022-10-21
    Simonnov
    Ic
  • T202311701
    2022-10-21
    T202311701
    O
  • 錢小欽
    2022-10-21
    錢小欽
    Ok
  • 股勇者
    2022-10-21
    股勇者
    Dors the Fed not knowing the CPI is a lagging indicator? Do they want to see more ppl losing their jobs and default housing loans?
    • MIe
      Latency in data points
  • amroui
    2022-10-21
    amroui
    Companies are cutting workforce, retail is starting to see a slowdown, and yet we're still seeing inflation persist. The increase in rates has done what it can do i.e. slow down or lower future growth expectations. We see that in this quarter's earnings comments. Most talk are about tempering expectations in light of a possible recession. What then could be keeping prices up still? Could it be.. the expectation of increasing interest rates? No company/seller will lower their prices if they can't afford to keep afloat. If the Feds only way of seeing success is seeing thefailure of the economy, then they're succeeding. Economics modeling needs to take into account human behavior. After all, it is human behavior (and emotions) that drive the economy trends. 
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      Gd
    • YiCheng0301
      Unlikely to see FED PIVOT in 2023 Q2
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