Friday, June 24, 2016

Philadelphia Fed’s Patrick Harker on Coming Interest Rate Hikes

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said “it’s not out of the question to still have one, possibly two” interest rate increases this year, though the recent weak jobs report has left the strength of the U.S. economy more open to questions. “We are at a point now where that jobs report gave us some pause. But I still think that the economy continues to be quite strong,” Harker noted in this wide-ranging Knowledge@Wharton interview, which took place before the U.K. vote to leave the European Union. Harker’s comments came during a two-day conference — “The Interplay between Financial Regulations, Resilience, and Growth” – sponsored by the Federal Reserve Bank of Philadelphia, the Wharton Financial Institutions Center, the Imperial College Business School and the Journal of Financial Services Research.
Harker’s views on the surprisingly weak May jobs report and potential for rate increases this year echoed those of Fed Chair Janet Yellen, who also cited financial market risks from a potential Brexit this week as notable reasons why the Federal Open Market Committee (FOMC) voted unanimously on June 15 not to raise interest rates. She reiterated many of those comments Tuesday and Wednesday before Congress. The FMOC meets again next month to reconsider whether an interest rate increase is needed now, and the next opportunity for an FOMC decision comes in September.

 In Part 1 of this two-part series, Harker, a former Wharton dean, also discusses the limits of monetary policy; zero-bound and negative interest rates; the importance of education, innovation and infrastructure development for productivity; and a coming labor squeeze from Baby Boomer retirements that is threatening a slower, “new normal” U.S. growth rate. In Part 2 Harker discusses whether the Fed should be in the business of bursting asset or credit bubbles; ‘Too Big To Fail’ issues; shadow banking; fintech; and what surprised him during his first year as president of the Federal Reserve Bank of Philadelphia.
And edited transcript of the conversation follows:

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