Philadelphia Federal Reserve Chairman Patrick Harker said Thursday higher interest rates had done little to keep inflation in check, so more hikes were needed.
“We’re going to keep raising rates for a while longer,” the central bank official said in a speech in New Jersey. “Given our frankly disappointing lack of progress on containing inflation, I expect we’ll be well above 4% by the end of the year.”
The latter comment related to the fed funds rate, which is currently being targeted in a range between 3% and 3.75%.
Markets are broadly expecting the Fed to approve a fourth straight 0.75 percentage point rate hike in early November, followed by another in December. The Federal Open Market Committee, of which Harker is a non-voting member this year, is expected to hike rates slightly in 2023 before settling in a range of around 4.5% to 4.75% .
Harker pointed out that these higher rates are likely to persist for an extended period of time.
“Sometime next year we will stop raising rates. At this point I think we should stick with a restrictive rate for a while to let monetary policy do its job,” he said. “It will take a while for the higher cost of capital to permeate the economy. After that, if need be, we can further streamline based on the data.”
Inflation is currently hovering around its highest level in more than 40 years.
According to the Fed’s preferred measure, headline personal consumption spending inflation is at an annualized rate of 6.2%, while core inflation excluding food and energy prices is 4.9%, both well above the central bank’s 2% target.
“Inflation will come down, but it will take some time before we reach our target,” Harker said.