MNI BRIEF: Harker Sees Fed Hiking to Neutral Without Recession

The Federal Reserve can bring interest rates to neutral and scale back its balance sheet without stalling out the economy in hopes of curbing inflation pressure that will persist because of the Ukraine conflict and supply chain breakdowns, Philadelphia Fed President Patrick Harker said Wednesday.

“We've committed to raising rates” in a methodical way “back to what you would consider neutral” which is around 2.5%, he said while answering questions after a speech. “The other thing we're doing is shrinking our balance sheet. You know, that ballooned to nine trillion dollars-ish during the pandemic, we need to start bringing that back down.”

Inflation pressures from the Ukraine conflict "will be with us for a little while" even if there is some offset from slowing demand in China, Harker said. “The good news right now is we're starting this process with a very healthy economy, save inflation. And so we don't want to lose that fact.”