Harker: The Fed should raise the rate slightly above 5% and take a break

The president of the Federal Reserve Bank of Philadelphia, Patrick Harker, said that the US Federal Reserve System needs to raise the base interest rate slightly above 5% per annum, and then pause.

In his speech, Harker noted that he and other representatives of the regulator expect repeated rate increases in 2023. At the same time, the official doubts the likelihood of an increase of 75 basis points and relies on further tightening of monetary policy in increments of 25 basis points.

In general, according to Harker, the Fed should raise the rate slightly above 5% and then take a break. The fact is that consumer price data for December already indicate a slowdown in inflation (6.5%). And since inflation is moving in the right direction, it is important for the Fed not to overdo its actions regarding monetary policy.

The head of the Philadelphia Fed also shared his forecast regarding core inflation: this year Harker expects the Core CPI index to slow down to 3.5%, and then to 2.5% in 2024. According to him, returning to the Fed's 2% target will take time. Core inflation in December 2022 (excluding the cost of food and energy) was 5.7% against 6% in November.