Fed's Harker Calls June Rate Hike a `Distinct' PossibilityBy and
Philadelphia Fed chief speaks with reporters in New York
Harker said balance-sheet unwinding will happen in background
Federal Reserve Bank of Philadelphia President Patrick Harker said June “is a distinct possibility” for the U.S. central bank’s second interest-rate increase of 2017.
The Fed lifted rates in March and its economic projections suggest that policy makers expect two more increases this year. Harker, who made the comment to reporters following a speech in New York on Tuesday, voiced what investors have been thinking: fed funds futures pricing suggests that most expect a move when the Fed concludes its next meeting on June 14.
“I continue to see three rate hikes for 2017 as appropriate,” Harker earlier told an audience at a Market News International event in New York. He also reiterated that Fed balance-sheet unwinding will probably start this year, while emphasizing that the process would be gradual and predictable. “It will be the policy equivalent of watching paint dry,” he said.
Fed policy makers are contending with unemployment that’s well below their estimate of the long-run sustainable rate, paired with inflation that continues to undershoot their 2 percent target. Harker, a voting member of the rate-setting Federal Open Market Committee this year, gave an optimistic reading of the economy and the outlook, but told reporters that another downside surprise on inflation would “worry me a little bit.”
U.S. unemployment declined to 4.4 percent in April, its lowest reading since May 2007, but progress toward its inflation goal has stalled, with its preferred gauge of price pressures falling to 1.8 percent in March from 2.1 percent the month before.