Fed’s Harker sees ‘lack of progress’ on inflation, expects aggressive rate hikes ahead

Philadelphia Federal Reserve Chairman Patrick Harker said Thursday that rising interest rates have done little to contain inflation, so further increases will be needed.

“We’re going to keep raising rates for a while,” the central bank official said during a speech in New Jersey. “Given our frankly disappointing lack of progress in reducing inflation, I expect we will be well above 4% by the end of the year.”

That last comment was referring to the federal funds rate, which is currently targeted in a range between 3% and 3.75%.

Markets widely expect the Fed to approve a fourth straight interest rate hike of 0.75 percentage points in early November, followed by another in December. The Federal Open Market Committee, of which Harker is a non-voting member this year, is expected to raise rates next a bit in 2023 before settling in a range of around 4.5% to 4, 75%.

Harker said these higher rates are expected to stay in place for an extended period.

“Over the next year, we’re going to stop raising rates. At this point, I think we should keep the rate restrictive for a while to let monetary policy do its thing,” he said. . “It will take some time for the higher cost of capital to trickle down to the economy. After that, if we have to, we can tighten further, based on the data.”

Inflation is currently hovering around its highest level in over 40 years.

According to the Fed’s preferred gauge, headline personal consumption expenditure inflation is running at an annual rate of 6.2%, while core inflation, excluding food and energy prices , stands at 4.9%, both well above the central bank’s 2% target.

“Inflation will come down, but it will take time to reach our target,” Harker said.

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