Philly Fed President Unconvincing As He "Lightly" Pencils In December Hike

Tyler Durden's picture

Speaking in at a conference in Tokyo, the head of the Philly Fed, Patrick Harker said that he has penciled in a further rate hike by the Fed at its December meeting on 12-13 December 2017. However, his use of the word “lightly” suggested that there may be a degree of wavering on his part. According to Reuters.

A Federal Reserve official said on Monday he expects to back an interest rate hike next month despite caution over low-inflation, as U.S. central bank policy needs to be positioned to deal with future economic shocks.

 

Philadelphia Fed President Patrick Harker said he has “lightly penciled in” a December rate hike. However, he flagged he had slightly less conviction about the policy decision than he had last month as he “continues to elicit caution” about weak inflation and also about the way in which it is measured. Harker said he expects the Fed to raise rates three times next year as long as inflation remains on track, and the projected tightening could take policy to what he would describe as a neutral stance. Harker, a centrist voter on the Fed’s monetary policy committee this year under an internal rotation, said the Fed must continue normalizing policy as the economy is “more or less at full strength” and there remains “very little slack” in the labor market. “Removing accommodation is the right next step for a few reasons,” he said in prepared remarks to a Global Interdependence Center conference in Tokyo…

 

Price measures have drifted lower below the Fed’s 2-percent target this year even while unemployment has fallen. The central bank has raised rates a notch twice in 2017 and is widely expected to do so again next month from its current target range of 1.00 percent to 1.25 percent.

US inflation data is due on Wednesday this week, with the consensus expecting a modest 0.1% month-on-month rise in the headline CPI rate, with the year-on-year ticking back up to 2.0%. Core CPI is expected to be 0.2% month-on-month leaving the annual rate unchanged at 1.7%. Harker said that he doesn’t expect a large move and told Bloomberg TV that he will be focusing on wage inflation and employment data to support a rate hike before the December FOMC meeting. From Reuters.

Harker said the conditions in the U.S. economy are ripe for further gains in consumer prices, but he wants to make sure he can confirm this in the economic data.

 

“We will see unemployment drop below 4 percent probably late 2018 or early 2019, before it starts to come back up,” Harker said. “That should put pressure on wages and we should see inflation moving back to target. But again, I emphasize the word ‘should’ because we’ve been predicting this for a while and it hasn’t happened.”

Playing down any change in policy from the appointment of Jerome Powell as Fed Chairman, Harker noted that it was still undecided whether Janet Yellen would stay on as a Fed Governor when she steps down. Without saying it directly, it’s clear that Harker is concerned about a hiatus in US economic growth in the coming years, as he should be. While neglecting to mention debt, Harker highlighted the other “d” along with productivity.  

Harker said the United States faces a demographic challenge as baby boomers retire and are replaced by younger workers who get paid less.

 

He saw parallels with Japan’s rapidly ageing population and said raising productivity is the key to solving this problem.

 

“We create the conditions for growth, or lack thereof, but fundamental growth comes from the increase in labor force and the increase productivity,” he said. “By definition, those two define fundamental economic growth.”

Despite concerns about growth, Harker remains committed to reducing the Fed’s balance sheet. When pressed on the flattening yield curve and the risk it could invert, Harker cited the highly accomodative policies of other central banks, especially the Bank of Japan, as being a major factor. One justification for reducing the balance sheet cited by Harker is to provide the Fed with the ammunition to tackle the next crisis.

“In the event of another shock to the system, I want our tools to be at their most effective, and in my view, that means reducing our balance sheet.”

 

The Fed will also continue to trim its nearly $4.5-trillion bond portfolio, which Harker said should be clearly communicated in advance and happen in a predictable manner.

When pressed by a Bloomberg TV journalist about the risk to equity markets from the Fed reducing its balance sheet, Harker was at his least convincing. He noted that the Fed would try to do it in a way that is “as boring as watching paint dry” which, of course, is just sidestepping the critical question of what happens when the flow, which has driven equity markets to all-time highs, is reversed. No matter how convincing they try, and often fail to sound, it’s just a grand “experiment” after all.
 

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LawsofPhysics's picture

But we have "Full Employment" and equities still at "all time highs"...

..even inflation is running above their target using their own metrics!!!

could it be they are actually lying?

"Full Faith and Credit"

spastic_colon's picture

^^this......if all is well whats the problem??

Silver Savior's picture

Oh sure hike rates during a full blown recession. What a pumpkin head.

Dragon HAwk's picture

We were going to raise rates, but then we saw the woolly bear caterpillar had a little bit of black on his back end.

surfvin's picture

Why are these maggots still drawing a breath let alone running our monetary system.

Deplorable's picture

I will believe it when I see it....No Hike in December!

djrichard's picture

I'd say it is imminent.  13 week treasury is at 1.2%, an 8 basis point rise since end of Oct.  Maybe 3 more basis points to go and that's 25 basis points since the last rate hike back in June.

jmack's picture

Doesnt matter, we dont need the Saudi's to buy treasuries anymore, we can just sell them to the FED.  Free money forever!

moonmac's picture

By analying 30 years of our factories Sales History back to the beginning of 1989 you can easily see every time we raised pricing across the board an imminent crash was  just ahead. We just sent out Price Increase Letters which starts Jan. 1st. Sure is a nice way to drum up a bunch of stock orders. Driving demand forward is what Keynesian Economics does best!

Silver Savior's picture

For me when I see price increases I sometimes refuse to buy product. I question myself if I really need it. There are limits to what the market will bear. 

everything1's picture

I think they have to go up, if economies overheat to much then what, and not just the U.S., Asian economies are on fire.  DOW up 30% + this year alone.  It's time, and like previous rate hikes we will get something for it.

Clowns on Acid's picture

Will someone ask this cwunt "why is inflation needed?". Is inflation = growth?

CPL's picture

Die Patrick Harker Die.  Die in a fire.