Top Fed official expects at least 3 rate hikes in 2016

Traders working on the floor of the New York Stock Exchange on March 16. PHOTO: BLOOMBERG

NEW YORK (REUTERS) - The Federal Reserve should consider another interest rate hike as early as next month if the US economy continues to improve as it has of late, a top Fed official said on Tuesday (March 22), as he said he would prefer at least three hikes before year end.

Philadelphia Fed President Patrick Harker, a relatively new addition to the US central bank, said that while he supported last week's decision by his colleagues to leave policy unchanged, "there is a strong case that we need to continue to raise rates."

"I think we need to get on with it," said Mr Harker, who became the president of the Philadelphia Fed in mid-2015. Mr Harker does not have a vote on policy until next year.

"This economy is really quite resilient to a lot of the headwinds (including the strong dollar), so if that continues I would be supportive of another 25 basis point rise."

The US central bank, which lifted rates by 25 basis points from near zero in December, in its first hike in almost a decade, last week left rates unchanged and downgraded its expectations for the economy due to risks from abroad and residual worries about early-year market turmoil.

At that meeting, published forecasts showed that nine of the Fed's 17 policymakers recommended two rate hikes through the rest of this year, three officials recommended three hikes, and four recommended four hikes. One official recommended just one hike in 2016.

"I am not a two (rate) rise person," Mr Harker said in a speech to the Money Marketeers bond traders in New York. "I'd rather see (more hikes this year)," he added.

That puts Mr Harker in the hawkish camp of Fed officials, even though last month he urged patience and said more hikes could come in the second half of the year.

Mr Harker said monetary policy would still be "incredibly accommodative" even after another three rate rises, which would put the federal funds rate just above 1 per cent. It is around 0.37 per cent now.

Economists and traders give long odds to the chances of a tightening at the Fed's next policy meeting, on April 26-27.

Mr Harker, however, spoke strongly about the need to not shy away from possible rate hikes.

"Barring some unforeseen headwinds which are always possible, then I think it's appropriate to consider every meeting live ... and to consider another 25 basis-point rise" if employment and job growth improves and core inflation rises as they recently have, he said.

Mr Harker also offered a glimpse of the battle within the Fed's policy-making committee, saying that uncertainty over potential growth is "at the heart of the genuine disagreements that members ... have regarding the stance of policy."

Join ST's Telegram channel and get the latest breaking news delivered to you.