Philadelphia Fed leader backs 50-basis-point rate increases at the next two meetings.
Federal Reserve Bank of Philadelphia President Patrick Harker on Wednesday backed Chair Jerome Powell's plan to raise the fed funds rate target by more aggressive half-point increments in June and July before dialing back to a "measured pace" of rate increases.
"Going forward, if there are no significant changes in the data in the coming weeks, I expect two additional 50 basis point rate hikes in June and July. After that, I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target," he said in remarks prepared for a virtual meeting of the Mid-Size Bank Coalition of America.
A "measured pace" was a phrase last used by former Fed Chair Alan Greenspan decades ago to signal a quarter-point rate hike at each meeting. The current fed funds target range is 0.75% to 1%.
Cleveland Fed President Loretta Mester told MNI this week she would favor larger rate increases if inflation failed to come down by September, echoing remarks to MNI's FedSpeak podcast from Richmond Fed President Thomas Barkin earlier this month.
Harker expressed confidence in the health of the U.S. economy, saying he expects GDP to grow at an above-trend 3% this year. "Underlying demand growth remains strong, and the job market should stay tight through 2022."
Recent Philadelphia Fed research shows a lot of job openings that might have been previously off-limits to someone without a college degree became viable options after the pandemic, he said. Nominal wages are also higher, thanks to the tight labor market, but aren't keeping pace with the rise in the cost of living, an "urgent problem," Harker said.
"As a central bank, there is little the Federal Reserve can do to affect the supply constraints pushing up inflation. But we can affect demand — and that is what we have begun to do," he said.