LONDON (Reuters) - The Fed may have to rethink its interest rate hike plans if inflation continues to wane, Philadelphia Federal Reserve Bank President Patrick Harker said on Tuesday.
“My forecast is for the ceasing of reinvestment (of bond profits) this year and possibly one more rate increase, but if we start to see inflation continue to deteriorate ... then I would revisit that. We have to be open to that,” said Harker, one of the Fed’s current voting board members, during a European Economics and Financial Centre event in London.
“But again, I don’t want to take a few months as a long-term trend. We will see how that unfolds - the dynamics of inflation are complex and I don’t think anyone fully understands them in the U.S. context,” he added.
”We have strengthening growth globally overall and you’re starting to see some signs of that, which would argue for inflation to be going north rather than south, but at the same time we’re seeing these weak numbers.
“And we are seeing this inflation pressure, but it is not uniform across the spectrum of employees,” said Harker.
“The appropriate policy stance is to see how things turn out as opposed to making long term commitment to what we have today,” he said.
The Federal Reserve raised U.S. interest rates for the second time this year last month but it was only the fourth time since the collapse of Lehman Brothers ignited the global financial crisis.
Harker also said the Fed’s monetary policy would still be “accommodative” with a further 25 basis point rate increase.
“It’s not a matter of tightening significantly, it’s fairly gradual. I think that’s appropriate,” he added.
Reporting by Helen Reid; editing by Marc Jones