US Fed official sees one rate hike "at most" in 2019

29 Mars, 2019, 08:36 | Auteur: Auguste Feret
  • Philly’s Harker says the Fed will go easy on the economy as U.S. business investment slows

As expected, the Federal Reserve kept the interest rates unchanged. Powell on Friday said it is more likely the Fed will stop shrinking its balance sheet now that it has halted a trend of boosting interest rates, noted Ryan Sweet, head of monetary policy research at Moody's Analytics.

Stressing that he was speaking for himself and not the Fed as a whole, Harker predicted GDP growth "a bit above 2 percent for this year, returning to trend of around 2 percent sometime in 2020" as a result of the U.S.'s aging population, slow-growing workforce and "lower productivity growth". Mr. Powell didn't eliminate the possibility, based on the present condition of the economics, the Fed's next move might be a rate cut.

In a speech in London, Harker said the overall outlook for the US economy is "overall, pretty good", but noted that the potential risks "tilt very slightly to the downside".

Despite his concern, Mr. Harker said he is largely sticking to his outlook for monetary policy.

Harker said economists at the Philly Fed, led by Roc Armenter, had conducted analyses that support "this slow and steady approach", which he called "the safer option" and one that reduces "uncertainty" about the Fed's intentions, making it more "predictable".

Harker says once the Fed stops unwinding its balance sheet, it will very gradually decrease reserves as Federal Reserve notes in circulation (or currency), continue to steadily grow.

"My current view is that, at most, one rate hike this year, and one in 2020, is appropriate, and my stance will be guided by data as they come in and events as they unfold", he said.

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"If we can avoid yield curve inversions, we should", he said.

But Harker said the Fed will need to eventually make decisions on the composition of the balance sheet, saying that he would prefer a simpler, shorter-term mix of assets that prioritizes neutrality and flexibility. The Fed's fairly downbeat economic evaluation is at odds with the White House's rosy economic projections, that have continued to forecast stronger growth compared to most other forecasters state is probable. The Fed bought mortgage-backed securities in an unusual step after the financial crisis to help stabilize the housing market and economy.

Harker said the Fed should keep a shorter-duration portfolio so that it could redeploy Operation Twist in another crunch.

The president publicly criticized the Fed for raising rates previous year via Twitter and in interviews.

The regional Federal Reserve presidents who serve on the Federal Reserve's rate-setting committee "are a pretty stable force", and balanced presidential appointments, he said.

Harker declined to comment more generally on Moore's suitability, which has been questioned given his more limited background in academia or banking than previous Fed nominees.

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