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--FOMC Can Take Some Time To See How Data Plays Out
--Want to See Inflation Reach, Stay Above 2% For a While
--No Sign Inflation Accelerating Rapidly
By Jean Yung
PHILADELPHIA (MNI) - Philadelphia Federal Reserve Bank President Patrick
Harker on Friday told reporters he prefers a "slow and steady" approach to
raising interest rates in light of considerable uncertainty over sluggish
inflation and a flattening yield curve.
"At this point I don't think we should do anything to precipitate the
inversion of the yield curve or other things," he said on the sidelines of the
American Economic Association conference. "That's why I want to be slow and
steady with additional rate increases, which is slowly removing accommodation
along with normalization of the balance sheet."
He said in remarks prepared for the conference that he has penciled in two
rate hikes for the year, a slightly more dovish expectation than he had late
last year. He declined to predict whether March might be an appropriate time for
the next move, saying, "Given that we just moved in December and we continue to
watch the balance sheet normalization, I think we can take some time."
--HITTING INFLATION TARGET
The fact that policymakers are not seeing an acceleration of inflation in
any significant way means "we have some time," he repeated. Harker does not vote
on rates this year.
The Fed has said its 2% inflation target is symmetric, and there are some
signs that it is firming, Harker said. However, policymakers don't fully
understand why progress has been so slow when the labor market is at full
employment and economic growth momentum looks solid.
"It would be helpful if we were able to get inflation not just at 2% but
above it for a while," Harker said.
The $1.5 trillion tax cuts Congress passed in December is not expected to
have a large impact on growth, perhaps adding only 10 to 20 basis points to GDP
growth per year. "The jury is still out" on how firms will use their tax
savings, whether to issue dividends, buy back stock or step up investments.
As for whether companies would raise wages, Harker said he was "skeptical."
From his experience sitting on corporate boards, firms will only raise wages
"because I have to and not because I want to," he said. And so far, anecdotal
reports from business contacts have painted a picture of firms trying to do
everything but raise wages, Harker said.
"I continue to expect that we'll see some wage pressure but we just simply
haven't seen it, so that's why I'm in a cautious stance right now."
--NEW POLICY FRAMEWORK
He admitted he among other policymakers have been "struggling" with
understanding how monetary policy and the economy are changing in light of the
uncertainty surrounding recent inflation and data trends.
That's "not a bad thing" but argues for exploring new ideas about monetary
policy frameworks such as inflation targeting, price level targeting or
asymmetric loss functions, a point he has made several times to his Fed
colleagues, including incoming Fed President Jay Powell, Harker said.
--MNI Washington Bureau; +1 202-371-2121; email: email@example.com