Fed official calls June rate rise a ‘distinct possibility’

US central bank lifted rates in March and policymakers expect two more hikes this year

Federal Reserve Bank of Philadelphia President Patrick Harker said June “is a distinct possibility” for the US central bank’s second interest-rate increase of 2017.

The Fed lifted rates in March and its economic projections suggest policymakers expect two more increases this year. Harker, who made the comment to reporters following a speech in New York on Tuesday, voiced what investors have been thinking: Fed funds futures pricing suggests that most expect a move when the Fed concludes its next meeting on June 14.

“I continue to see three rate hikes for 2017 as appropriate,” Harker earlier told an audience at a Market News International event in New York.

He also reiterated that Fed balance sheet unwinding will probably start this year, while emphasising the process would be gradual and predictable.

“It will be the policy equivalent of watching paint dry,” he said.

Unemployment, inflation

Fed policymakers are contending with unemployment that’s well below their estimate of the longrun sustainable rate, paired with inflation that continues to undershoot their 2 per cent target. Harker, a voting member of the ratesetting Federal Open Market Committee this year, gave an optimistic reading of the economy and the outlook, but told reporters that another downside surprise on inflation would “worry me a little bit.”

US unemployment declined to 4.4 per cent in April, its lowest reading since May 2007, but progress toward its inflation goal has stalled, with its preferred gauge of price pressures falling to 1.8 per cent in March from 2.1 per cent the month before.