Philadelphia Federal Reserve President Patrick Harker on Thursday said he expects the central bank will raise interest rates to “well above” 4 percent this year in an effort to tame soaring and persistent inflation.
“We are going to keep raising rates for a while,” Harker said. “Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4 percent by the end of the year,” he added, in reference to the current federal funds rate target of between 3 percent and 3.25 percent.
Data released in September shows inflation stood at 8.2 percent, narrowly missing out on market expectations of 8.1 percent, while on a monthly basis, the Consumer Price Index rose 0.4 percent.
The central bank is widely expected to initiate a fourth consecutive 0.75 percentage point interest rate hike at its early November meeting, which will likely be followed by another one in December as the cost of living continues to linger at a 40-year high in the United States.
Fed Will ‘Stop Hiking Rates’ Next Year
Harker, who is a nonvoting member of FOMC this year, noted on Thursday the central bank will at some point take a step back and assess the impact of its rate rises on the economy.“Sometime next year, we are going to stop hiking rates,” he said, adding that “at that point, I think we should hold at a restrictive rate for a while to let monetary policy do its work.”
Yet he noted that “it will take a while for the higher cost of capital to work its way through the economy” and that if inflation hasn’t cooled off by next year, “we can tighten further, based on the data.”
The Fed official also said he sees the unemployment rate rising as high as 4.5 percent next year before dropping to 4 percent in 2024.
Harker said that policymakers “really need to see a sustained decline in a number of inflation indicators before we let up on tightening monetary policy,” noting that he sees inflation at around 6 percent this year before dropping down to 4 percent next year and 2.5 percent in 2024.
