Fed's Harker says two rate hikes 'appropriate' this year

From Reuters - January 5, 2018

PHILADELPHIA (Reuters) - Weak wage growth and possible risks in the bond market mean the Fed should slow its pace of rate hikes for now, Philadelphia Federal Reserve Bank President Patrick Harker said on Friday, adding the central bank should probably move just twice in 2018.

Even amid low inflation most central bankers have penciled in three rate increases for the year, and Harker as recently as November said he also felt three quarter-point hikes would be appropriate.

But on Friday he shifted gears, signaling the growing concern at the Fed over continued weak inflation, as well as a newly emerging risk that continued Fed action may push short term interest rates above long term ones.

Such a situation, known as an inversion, has historically signaled the onset of recession, and Harker joined St. Louis Fed President James Bullard in flagging that as a possible problem.

The spread between short-term government securities and the 10-year bond, currently about half a percentage point, has been narrowing as the Fed has raised its target rate, and Harker said that may mean the Fed should slow down.


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