September 29, 2016 / 10:47 AM / a year ago

Fed's Harker backs December rate hike if economy stays on track

DUBLIN (Reuters) - December’s U.S. Federal Reserve meeting would be an appropriate time to raise interest rates if the economy continues to move in the direction that it anticipates, Philadelphia Fed President Patrick Harker said on Thursday.

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

Harker said that he would have been very comfortable with a rate hike in September but that there was some disagreement among colleagues on how much slack remained in the labor market and when and by how much the Fed would exceed its 2 percent inflation target.

“Between now and December, to me I think we’ll have enough (data) that if things continue on the trajectory that I anticipate that December would be an appropriate time for a rate increase,” Harker told reporters in Dublin.

Harker, who is one of 12 regional bank presidents but does not currently have a vote on the Fed’s rate-setting policy committee, said the central bank risks falling behind the curve if it does not normalize rates sooner rather than later. He said that even its November policy meeting should not be ignored.

The Fed left rates unchanged last week but signaled clearly that it could tighten monetary policy by the end of the year, with many investors now expecting a rate rise in December.

Harker said in an earlier interview with Bloomberg Television that the United States would reach the Fed’s target inflation rate of 2 percent soon once energy and commodity prices firm, and that policymakers should lift rates in anticipation.

“I am convinced we will achieve that (2 percent rate) sooner rather than later so I am somewhat concerned about falling behind the curve,” Harker said.

Investors continue to see just better-than-even odds of a hike at the December policy meeting, and almost no chance of an increase in November.

But Harker said the November meeting should not be written off because “we don’t know what’s going to happen between now and then.”

He said it was “not clear yet” if a rate rise in December would be enough for rate rises to keep pace with inflation and avoid the economy overheating.

Three regional Fed presidents dissented from the central bank’s decision last week to keep rates steady, and several have begun citing concerns about financial stability and the need for the Fed to act in time to prevent any rapid run-up in prices.

Harker said one point of agreement among Federal Reserve members was that accommodative monetary policy should not be removed too quickly.

“I wouldn’t say there’s great dissent other than the speed at which we remove accommodation,” he said. “But nobody thinks that we should do that quickly - it will be a shallow path.”

Reporting by Conor Humphries, Padraic Halpin and Andy Bruce; Editing by Hugh Lawson

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