Fed’s Harker Backs March Hike, Is Less Convinced on Half-Point Move

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Federal Reserve Bank of Philadelphia President Patrick Harker favors four 25 basis-point interest-rate increases this year starting next month, but doesn't back a 50 basis-point move unless there's an inflation “spike.”

“I would be supportive of a 25 basis-point increase in March. Could we do 50? Yeah. Should we? Well, I'm a little less convinced of that right now,” Harker said Tuesday in an interview on Bloomberg Television. “But we'll see how the data turn out in the next couple of weeks.”

Harker, currently voting on policy decisions as an alternate for the Boston Fed while it looks for a new president, stipulated that he would need to see inflation accelerate from current levels to favor the bigger rate move.

“If inflation stays where it is right now and continues to start to come down, I don't see a 50 basis-point increase. But if we see a spike, then I think we might have to act more aggressively,” he said.

Policy makers will receive two monthly consumer price reports between now and their March 15-16 meeting, with January CPI due on Feb. 10 and this month's print released on March 10.

Chair Jerome Powell said last week that officials were ready to raise rates in March to curb the strongest inflation in four decades. But he declined to give specific guidance on the policy path thereafter, saying it would depend on the data. His reticence has opened the door to hiking at every meeting this year if needed.

Officials speaking since then have generally been careful not to offer specific rate forecasts beyond saying that policy will be driven by how inflation evolves. They have also stressed avoiding unnecessary disruption to the economy as it heals from Covid-19.

Harker emphasized that policy was not on a preset course and would react to how the economy evolves.

“Right now, I think four 25 basis-point increases this year is appropriate but there's a lot of risk here,” he told Bloomberg interviewers including Michael McKee, noting that high inflation could turn out to be more persistent than expected or ease faster -- though he added that this was a less likely outcome.

“This is where we need to keep flexible with respect to policy. We can't define a path right now and just stick to it. We've got to look at the data,” Harker said.

There is a wide spread of forecasts among top banks, who've penciled in up to seven quarter-point moves in 2022. Fed officials projected three rate increases this year in quarterly forecasts they published in December, though Powell said the inflation outlook had deteriorated somewhat since then.