Fed’s Harker Says Two Interest-Rate Hikes May Be Needed in 2016

Would Two Fed Interest Rate Hikes be Justified?
  • Brexit is low on Harker’s list of concerns, he says in speech
  • Inflation will return to 2 percent target in 2017, Harker says

The U.S. economy shouldn’t sustain much damage from the Brexit vote and may warrant as many as two interest-rate increases before the end of the year, said Federal Reserve Bank of Philadelphia President Patrick Harker.

“I believe that inflation will return to target sometime next year," Harker, who does not vote on monetary policy in 2016, said in prepared remarks for a speech in Philadelphia Wednesday. “I anticipate that it may be appropriate for up to two additional rate hikes this year and that the funds rate will approach 3.0 percent by the end of 2018.”

Harker’s comments come at a time when labor market progress has slowed and international risks remain, particularly in the wake of Britain’s June 23 vote to exit the European Union. The Fed has been looking for an opportunity to raise rates as the labor market heals and inflation moves up toward its 2 percent goal, but events abroad have spurred volatility in markets and stayed its hand so far this year.

While acknowledging that Brexit is causing uncertainty, Harker played down its significance.

“Brexit is low on my list of risks, and I do not anticipate more than a transitory couple of 10ths of a percentage point slowdown in growth,” he said. Harker said he expects economic growth of 2 percent in 2016 and 2.3 percent in both 2017 and 2018.

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