Philadelphia Fed’s Harker wants policy rate above 3.4% followed by pause

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Philadelphia Fed President Patrick Harker said on Thursday he wants to see the central bank’s overnight rate hit 3.4%, followed by a possible pause.

This implies an interest rate hike of 50 basis points in September, then two hikes of 25 basis points by the end of 2022. By comparison, markets are now hedging against a more aggressive 75 basis point move at the September 21 Federal Open Market Committee meeting.

Speaking to CNBC, Harker argued that 50 basis points “would still be a substantial decision,” but he has yet to decide whether the fed funds rate should be raised by 50 basis points or 75 basis points. basis at the next FOMC meeting.

Note that the Fed’s current target rate range is 2.25% to 2.50%, which is roughly the same level at which Harker believes the Fed’s key rate would neither stimulate nor hinder demand. in the medium and long term, i.e. the neutral rate.

Overall, “I want to see the next inflation reading before I decide for September,” Harker told CNBC. Consumer price inflation appears to have potentially peaked in June after holding steady in July, while still hovering around a four-decade high.

If inflation continues to be stubbornly high, however, further rate hikes will be needed, Harker said, noting he doesn’t see a sustained risk of recession. “We have to adopt a restrictive position, which we will be by the end of the year.”

Earlier, Bostic made similar remarks about being on the fence between a 50bp and 75bp rate hike.

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