MNI: Fed’s Harker Sees Slower Hike In Coming Months

The Federal Reserve could slow the pace of interest rate increases in “upcoming months” but will continue to tighten monetary policy until financial conditions are “sufficiently restrictive,” Philadelphia Fed President Patrick Harker said Thursday.

Harker’s comments come as weaker-than-expected October consumer inflation figures boosted market expectations that the FOMC will step down to a 50-basis-point hike in December after raising rates by 75 basis points for four meetings in a row.

“In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance,” Harker told the Risk Management Association in prepared remarks.

“But I want to be clear: A rate hike of 50 basis points would still be significant.”

He noted that since 1983, the FOMC has increased the fed funds rate target a total of 88 times, and of those, 75 of the hikes were less than 50 basis points.

RESTRICTIVE 'FOR A WHILE'

At some point next year, he said, the Fed will likely hold policy at restrictive levels “for a while” to allow monetary policy tightening to work through the system.

“After that, if we have to, we can always tighten further, based on the data. But we should let the system work itself out. And we also need to recognize that this will take time: Inflation is known to shoot up like a rocket and then come down like a feather,” Harker said, suggesting a soft landing will be tough but is still attainable. “We can bring inflation under control without doing unnecessary damage to the labor market."

Richmond Fed President Thomas Barkin told MNI in an interview Wednesday that the Fed’s ultimate peak in rates might need to be higher due to stubbornly high inflation.