Philadelphia Fed President Patrick Harker said Thursday that he expects three or four rate hikes this year likely to fight inflation.
His reasoning, outlined in a live interview on CNBC’s “Closing Bell,” aligns with the Federal Open Market Committee’s policy-making estimates released in December.
But while officials then identified the possibility of three-quarters of a percentage point increases in 2022 from the Federal Reserve’s benchmark borrowing rate, Harker said he may be open to more.
“We need to take action on inflation. It’s more steady than we’ve thought for a while. I’ve been off the ‘temporary’ team for a while now,” he said, citing the term Fed officials use to describe inflation through most of 2021 before pivoting into end of the year.
“I think it’s appropriate to take action this year,” Harker said. “three [hikes] It is what I put in pencil, but four is not out of my mind.”
Harker’s comments come as Labor Department reports showed inflation rising in the US economy. Consumer inflation hit 7%, its highest annual rate since June 1982, while wholesale prices in 2021 rose 9.7%, the largest movement in data going back to 2010.
After the December meeting, the FOMC set a timetable that would also end monthly bond purchases around March. The minutes released later showed that some members also believed that the Fed should start reducing the size of its balance sheet, likely by allowing some of its bond yields to trade each month.
But Harker prefers a slower approach to the balance sheet issue. He believes the Fed should wait until it raises rates “for the sake of argument by 100 basis points,” or four hikes, before beginning to reduce what has become more than $8.8 trillion from the balance sheet as a result of asset purchases during the pandemic. A base point is one hundredth of a percentage point.
“I don’t want to do it all at once,” he said. “I think this is just the wrong way.” “Let’s do it in stages.”
He said the slowdown would protect the economy from the shocks that could occur from the Federal Reserve’s rollback of the easiest monetary policy in its history. He said the Fed could avoid killing the recovery if it moved “cautiously and methodically. That’s why I’m not in the camp of raising interest rates and doing balance sheet normalization at the same time.”
Earlier in the day, Chicago Fed President Charles Evans also said he sees three rate increases likely, although he’s also open to more.
“[Three increases are] “Maybe it will be a good opening show this year depending on how the data is released. It could be four if the data doesn’t improve fast enough on inflation,” Evans told reporters.
Neither Evans nor Harker are voters this year for the FOMC, although they can voice their opinions at policy meetings and their opinions are part of the committee’s “point chart” for members’ interest rate expectations.