Fed’s Harker Speaks of Rates Hike in December

Patrick Harker, the Federal Reserve Bank of Philadelphia President implied that the uncertainty being spurred by the US presidential election might be a significant reason to further delay a rates hike until the November ballot.

“What I’m worried about is, depending on the outcome of the election and what happens after that, if there are policies that would have distortive effects that we would have to respond to,” he said to reporters on Thursday after giving a speech in Philadelphia. In that case, “it may be prudent -- and I emphasize may be prudent -- to wait until we resolve some of that uncertainty,” he added.

Hillary Clinton, the Democratic presidential nominee has envisioned a tax increase for wealthy Americans while her Republican counterpart Donald Trump has based most of his campaign on renegotiating US trade agreements. The approach being proposed by both candidates has drawn all sorts of comments as economists from both parties believe that Trump’s pledge to place tariffs on certain imports could lead to a detrimental trade war and Republicans have repeatedly expressed that higher taxes would negatively affect growth.

The chances of a quarter percentage point rate hike at the policy-setting Federal Open Market Committee’s meeting in December has been placed around two-thirds, there is also a less than 20% chance of a move at next month’s meeting, which is scheduled to hold before the November 8 US presidential election.

Earlier in the day, Harker had made comments indicating that he would back one interest rate increase this year and that he would have been comfortable with a rate increase at the September meeting. Harker was still concerned over the outlook for business investment with capital spending undermined by uncertainty, although he also commented that it was a function of low interest rates. He was slightly less concerned surrounding overheating risks in the commercial real-estate market, in contrast to concerns voiced by Boston Fed President Rosengren.

Harker, who will be an FOMC voter next year, said that delaying monetary tightening until December poses its own risks, as it may force the Fed to play catch-up on rates. “We’ll have to see how the economy evolves.”

The Fed kept rates unchanged last month as officials opted to wait for further improvement in the labor market, minutes of the meeting showed on Wednesday, though several officials said the decision had been a close call. Several also indicated it would be appropriate to raise rates “relatively soon.” Harker said that he supported a rate increase in September and would like to see the U.S. central bank gradually raise rates going forward. “I do think sooner rather than later is appropriate,” he said. “I don’t think that we should take any meeting off of the table, but I am worried about some of the risks that we face.”