One more rate hike should remain appropriate this year, Federal Reserve Bank of Philadelphia President Patrick Harker said Tuesday, although he said he thinks it will take a little longer than he expected for inflation to hit the Fed’s 2% target.

Federal Reserve Bank of Philadelphia President Patrick T. Harker.
Federal Reserve Bank of Philadelphia President Patrick T. Harker. Bloomberg News

“I still see another rate hike as appropriate for 2017, having already implemented two this year,” Harker said in a speech in London, according to prepared text released by the Fed. He said the economy’s strength leads him to “support the continued gradual removal of accommodation.”

Addressing inflation, Harker noted a downtick in the latest numbers, including a second straight drop in PCE, but said, “It’s a mistake to get caught up in a single decimal point, report, or even a quarter’s worth of data. The importance lies in underlying trends, and, in the case of inflation, I’ve seen the factors exerting downward pressure as temporary. That said, the Fed is data dependent, and, as information comes in, there’s the possibility that those transitory factors may be less transitory than we thought.”

Weaker inflation, he said, won't derail normalization. “For the meantime, therefore, I’m sticking to my outlook that we’re on the right path, but I’m adjusting my view slightly on meeting our inflation goal from the end of 2017 to the beginning of 2018. This is the advanced economic practice of ‘hedging one’s bets.’”

Harker noted recent improvement in wage growth, which he forecasts at 2.5% to 3% this year.

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Gary Siegel

Gary Siegel

Gary Siegel has been at The Bond Buyer since 1989, currently covering economic indicators and the Federal Reserve system.