© Reuters. Fed’s Harker: The rate hike should be adjusted to 25 basis points. The US economy will not decline this year
News from the Financial Associated Press on January 13 (edited by Xia Junxiong)On Thursday (January 12) local time, Philadelphia Fed President Harker said that although the Fed still needs to raise interest rates further to curb inflation, compared with last year, the pace of interest rate hikes may be much slower. Harker believes that the Fed should raise interest rates by 25 basis points in the future.
“I expect we’ll have a few more rate hikes this year, although in my view the days of our single 75 basis point hikes are definitely over,” Harker said Thursday at an event in Malvern, Pennsylvania. A rate hike of 25 basis points is appropriate in the future.”
The Fed is raising interest rates through 2022 at the most aggressive pace since the 1980s. The central bank raised interest rates by 50 basis points last month, raising the federal funds rate range to 4.25% to 4.5%. This is the first time the Fed has slowed the pace of rate hikes after raising rates four times in a row by 75 basis points.
Forecasts released by policymakers last month showed Fed officials expect rates to rise above 5% this year and remain there through 2024. Some officials said they were open to a quarter-point hike at the next rate meeting, depending on the circumstances. Policymakers, however, emphasized that the Fed still has more work to do to curb inflation and does not expect to cut rates this year.
Harker, who will become a voting member of the Federal Open Market Committee (FOMC) this year, reiterated that officials expect to keep interest rates elevated while they have time to assess the economy.
“I would expect that at some point this year, the policy rate will be sufficiently restrictive that we will leave rates on hold and let monetary policy do its job,” Harker said.
Harker expects the U.S. economy to avoid a recession and that overall economic activity will be moderate in 2023, growing by about 1% this year, rising to trend growth of about 2% in 2024 and 2025. He also expects the U.S. unemployment rate to rise to around 4.5% this year before falling to 4% over the next two years.
Harker made his position more explicit in the question-and-answer session after the speech, saying: “I have always believed that we need to raise interest rates above 5%. How much? We will let the data decide. But I am I don’t think there’s a need to raise rates well beyond 5% right now. It’s a wait and see so it doesn’t hurt the labor market.”
Harker said he was also in the cautious camp, preferring to proceed cautiously to avoid unnecessary damage to employment. “I don’t think we have to overreact with monetary policy,” he stressed.
Americans also need to understand that it will take years for inflation to fall back to the Fed’s 2 percent target, Harker added. He predicted that core inflation could fall to 3.5% in 2023 and reach the Fed’s 2% target in 2025.
“I think we have to accept that, but as long as we’re going in the right direction, we’re making progress. As long as we’re going in the right direction, I think we should be more cautious, not more aggressive,” Harker said. “
