January 28, 2022

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Fed's Evans and Harker see three or four rate increases in 2022

Fed’s Evans and Harker see three or four rate increases in 2022

Bloomberg — Federal Reserve Bank of Philadelphia President Patrick Harker and Bank of Chicago President Charles Evans have joined widespread calls from colleagues crafting policies to raise interest rates this year.

While Harker favors takeoffs in March and three or four hikes by 2022, Evans, who is seeing a similar number of hikes this year, said he couldn’t judge the likelihood of the first hike happening two months from now. Richmond Fed President Thomas Barkin, who will not vote this year, said officials would be in a position to begin normalizing interest rates at their March meeting if conditions supported it.

“I expect we’ll have a 25 basis point increase in March excluding any changes in the data,” Harker said Thursday at a virtual event hosted by the Philadelphia Business Journal, and two more increases this year. A quarter could be satisfied if inflation is not under control. But again, we have to look at the data.”

Harker joins a slew of Fed officials, led by St. Louis Chairman James Bullard, including low-price proponents such as San Francisco leader Mary Daly, in urging them to raise short-term interest rates after reducing asset purchases, which It is due to expire in March.

Harker, who serves as this year’s replacement for the Boston Fed that currently has no chair, is expected to vote his place on the Federal Open Market Committee (FOMC) to set policy until the position is filled.

The Richmond Fed’s Barkin did not comment on the number of rate hikes he expects this year, but said that the closer inflation gets to target levels, the easier it will be for rates to normalize at a measured pace.

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Speaking at a virtual event hosted by the Virginia Association of Bankers and the Virginia Chamber of Commerce, Barkin said that if inflation remains high and broad-based, “we will have to deal with normalization more aggressively, as we have done successfully in the past.”

Chicago’s Evans, who in December forecast three rate hikes for 2022, said a fourth rate hike may be on the table if price pressures do not improve.

Speaking to reporters on a call, Evans said the time between prices taking off and when the Federal Reserve starts allowing mature investments to offload its $8.77 trillion balance sheet will be shorter than in previous cases. “I hope we can make that decision soon,” he said.

When asked if the FOMC could decide at its January meeting to halt asset purchases before March, Evans said, “I have to listen to arguments. I’m not sure what additional data I’ve seen since December” would support a change in January meeting. “We will have to go to the meeting and talk about it,” he added.

Harker said he sees the Fed beginning to cut its balance sheet “in late 2022 or early 2023” after the central bank raised its target interest rate high enough, to about 1% from nearly zero. He advocated moving to a balance concentrated in Treasurys of shorter duration, with a heavy composition of Treasury or Treasury only over time.

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