Newly patient Fed still set to hike rates in 2019, 2020: Harker

By Jonathan Spicer

(Reuters) – The U.S. Federal Reserve’s new “wait and see” policy approach will still probably lead to one interest-rate hike before year end, and another in 2020, a top Fed official said on Wednesday.

Offering a clearer picture of his policy expectations than most other U.S. central bankers, Philadelphia Fed President Patrick Harker said the U.S. economy is generally in good shape and risks are only very slightly tilted to the downside.

“One rate hike for 2019 and one for 2020 are appropriate,” Harker, a centrist who does not vote on rates this year, said in his first expansive speech on monetary policy since July.

“With a temperate climate for inflation, continued strength in the labor market, very slight downside risks, solid but moderate growth projections for the next couple of years, and of course a climate of uncertainty, I continue to be in wait-and-see mode,” he said.

The Fed raised rates four times last year including in December in the face of hot economic growth and the lowest unemployment in decades. But in a shift last month, it said the tightening cycle was on hold in the face of economic weakness overseas and an expected slowdown at home.

Financial markets have effectively priced out any further rate hikes this year and see a rate cut as more likely in 2020. This despite Fed policymakers’ forecasts from December signaling rates were headed a bit higher over the next couple of years.

Several Fed policymakers have stressed patience in recent weeks and some, including Atlanta Fed President Raphael Bostic and Charles Evans of the Chicago Fed, have sketched out expectations for more tightening this year.

Addressing the Jewish Business Network in Philadelphia, Harker said his policy views would shift along with data. For now, he expects U.S. growth to be a bit above 2 percent in 2019 and sees U.S. inflation rebounding from a recent slump to rise a bit above 2 percent this year and next.

“I see patience as a virtue,” he said.

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