First comments by economists about raising interest rates in 2018

Patrick Harker, the Federal Reserve Chairman, said in a speech on Friday that Fed officials should lower their expectations for rate hikes this year. With the central bank ready to raise the target rate three times in 2018, Harker instead suggested that the Fed should consider a slower pace, despite lower inflation, at least until prices are adjusted.

Harker predicted that inflation would be slightly higher than the target in 2019. If soft inflation continues, it could represent a big problem. For this reason, Harker’s opinion is that we are likely to see two rate increases throughout 2018.

Harker recently voted to raise the Federal Reserve’s interest rate in the first quarter of December, the third increase in 2017 and the fifth since the central bank began this process in December 2015. This comes after the Fed kept its price close to zero for seven years after the financial crisis. In addition to re-evaluating the pace of price increases, Harker also revealed that he is one of the committee members who would prefer the Federal Reserve to examine the methods it uses to achieve its dual mandate of full employment and price stability.

The Federal Reserve has suffered from a deficit in economy due to the generation of inflationary pressures, especially when it comes to wages. Policy makers consider that a 2% rate may be a healthy inflation rate that indicates the growth of the economy. In this regard, Harker said it was time to consider whether sub-readings of 2% were part of a long-term pattern in which the Federal Reserve failed to meet its targets. “Inflation expectations could trend down, making it even more difficult to meet our target. It may, therefore, be time to re-evaluate the way we conduct policy”, he said.

Harker’s alternatives include inflation, price levels, or the use of “asymmetric loss functions,” a statistical term that allows the Federal Reserve to exceed its targets.

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