The President of Philadelphia’s Federal Reserve Bank, Patrick Harker, said on Friday that he thinks that the central bank should only raise rates two times this year, less than most of his colleagues, as low inflation continues plague the economy in the United States.
The dovish move for Harker, who was in favor of all three rate hikes for 2017, shows an increase in concerns regarding the central bank’s capability to spark up inflation with its 2-percent inflation target. Just in November, Harker stated that three rate hikes would be appropriate for this year, and now he is stating two. Most Fed officials anticipate three rate hikes for 2018, according to predictions released in December.
Although unemployment has dropped down to 4.1 percent, under the level of what economists see as full employment, wages on the other hand have been unsuccessful at rising. Inflation subsided last year rather than increasing.
On Friday, Harker said that he anticipates that the economy will grow at a rate lower than 2.5 percent. Harker added that he predicts that this year unemployment will remain low prior to increasing a few tenths of a percentage point in 2019. Next year, he believes that inflation will move above 2 percent prior to falling back down to the Fed’s target the following year. There is “little slack” left in the labor market, Harker added.
However, he said that, “if soft inflation persists, it may pose a significant problem,” such as making it harder for inflation to come back to a healthy level. “For that reason, my own view is that two rate increases are likely to be appropriate for 2018.”
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Harker also embraced the idea of some changes at the Fed that the central bank may throw out its current book on monetary policy and explore writing a new one that includes price-level targeting. With price-level targeting, the Fed would permit inflation to run rampant, essentially to make up for the periods of low inflation.
”I should be clear that I’m not pushing for any changes, nor do I have any particular change I would prefer,“ said Harker. ”I’d add that if and when that discussion arises, we need to be seriously considering the various alternatives — whether it’s inflation targeting, price-level targeting, or asymmetric loss functions — and not fixating on one without serious academic debate about the others.’