Fed’s Harker Says May Be Prudent to Wait on Election Before Hike

  • Philadelphia Fed chief says delaying to December carries risks
  • Harker votes on monetary policy in 2017, favors gradual path

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Federal Reserve Bank of Philadelphia President Patrick Harker said uncertainty stemming from the U.S. presidential election might be an argument for delaying a rate increase until after the November ballot.

“What I’m worried about is, depending on the outcome of the election and what happens after that, if there are policies that would have distortive effects that we would have to respond to,” he told reporters Thursday after giving a speech in Philadelphia. In that case, “it may be prudent -- and I emphasize may be prudent -- to wait until we resolve some of that uncertainty,” he said.

Democratic presidential nominee Hillary Clinton has proposed tax increases for wealthy Americans while her Republican rival Donald Trump has made renegotiating U.S. trade agreements a central part of his campaign. Republicans say higher taxes could hurt growth, while economists from both parties say that Trump’s vow to slap tariffs on certain imports could spark a damaging trade war.

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Investors see a roughly two-thirds probability of a quarter percentage point rate hike at the policy-setting Federal Open Market Committee’s meeting in December, and a less-than 20 percent chance of a move at next month’s gathering, held the week before the Nov. 8 U.S. presidential election.

Harker, who will be an FOMC voter next year, said that delaying monetary tightening until December poses its own risks, as it may force the Fed to play catch-up on rates. “We’ll have to see how the economy evolves.”

The Fed kept rates unchanged last month as officials opted to wait for further improvement in the labor market, minutes of the meeting showed on Wednesday, though several officials said the decision had been a close call. Several also indicated it would be appropriate to raise rates “relatively soon.”

Harker said that he supported a rate increase in September and would like to see the U.S. central bank gradually raise rates going forward.

“I do think sooner rather than later is appropriate,” he said. “I don’t think that we should take any meeting off of the table, but I am worried about some of the risks that we face.”

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