Philadelphia Fed President Patrick Harker expects two more 50 basis-point rate increases, with the Federal Reserve continuing to raise the federal funds rate "until we're confident that inflation is moving toward our target," he said in an online event sponsored by the Mid-Sized Bank Coalition of America.
The rate hikes are important because inflation "is a truly urgent problem," he noted. Currently, the markets are pricing in a 50-bp rate hike at each of the next two meetings. The CME FedWatch Tool gives a 78% probability that the federal funds rate will stand at 1.75%-2.0% after the July meeting. Currently the rate stands at 0.75%-1.0%.
Asked about the risk that the tightening will trigger a recession, Harker said, "There's always a risk there will be some negative growth. I'm still in the camp, that if we don't get a soft landing we can at least get a safe landing."
Even with the GDP decline in Q1 2022, he expects GDP growth between two and three percent for the full year.
This economy is strong enough to withstand a "measured, methodical tightening" that's well-communicated, Harker said. "Then we can look at the data to see if we need to do more."
The message has been very consistent among Fed officials. Earlier Wednesday, Chicago Fed's Charles Evans expects a 50-bp rate hike at the June meeting and "probably thereafter." On Tuesday, St. Louis Fed President James Bullard, one of the most hawkish of Fed policymakers, sees the central bank on course for 50-bp rate hikes at coming meetings.