Harker stands by Fed rate hikes but nods to weak inflation

Charles Mostoller | Bloomberg | Getty Images

Patrick T. Harker, president of the Federal Reserve Bank of Philadelphia

The Federal Reserve rightly plans to raise U.S. interest rates once more this year given recent inflation weakness is likely temporary, a Fed policymaker said on Tuesday even as he predicted it would take a bit longer for prices to rebound to the U.S. central bank’s goal.

The comments from Philadelphia Fed President Patrick Harker, a centrist U.S. rate-setter, reinforce the central bank’s wait-and-see approach to two months of surprisingly soft price readings which have brought its preferred inflation measure down to 1.5 percent.

“I’m sticking to my outlook that we’re on the right path,” Harker told the European Economics and Financial Center in London, according to prepared remarks. “In the case of inflation, I’ve seen the factors exerting downward pressure as temporary.”

Yet Harker, who votes on the Fed’s monetary policy committee this year under a rotation, hedged somewhat by delaying to early 2018 the time frame in which he expects inflation to rebound to a 2-percent target. He had previously penciled in the end of 2017.

The Fed has raised rates three times since December in a nod to unemployment having fallen last month to its lowest level in 16 years. Overall Fed forecasts predict another rate hike this year, and they see inflation hitting target by the end of 2018.

“I still support the continued gradual removal of accommodation,” Harker said. “I still see another rate hike as appropriate for 2017.”