Fed’s Harker Foresees Two to Three Rate Hikes in 2016, Cites Inflation Risk as Main Concern

Fed’s Harker is out talking greasy tonight, talking up rate hikes and inflation, pointing to a robust American economy, in spite of the inconvenient facts on the ground that suggests otherwise. Moreover, he believes the Fed will hike 2 to 3 more times in 2016 (that’s in the next 6 month’s for you 2nd grade math gurus out there).

The craziness of Harker’s comments is that he said the Fed might have to use ‘aggressive policy actions’ to fend off runaway inflation, which has consistently remained under 2%, for years.

He said once crude stabilized and ‘reversed’, inflation would surely hit 2% and more, further validating his stance that the Fed should hike rates now, in order to get ahead of the curve. This, of course, countermands reality, in that crude has ‘stabilized’ and is higher by more than 50% from the February lows–yet inflation is non-existent.

I suppose Harker believes crude will trade to $100 again? Speculating on the price of crude has always been something the Fed eschewed, due to the gambling nature of it all.

Federal Reserve Bank of Philadelphia President Patrick Harker said that he could see two to three rate hikes in 2016 and that prices will return towards the central bank’s inflation target over the medium term.

“Although I cannot give you a definitive path for how policy will evolve, I can easily see the possibility of two or three rate hikes over the remainder of the year,” Harker said, according to remarks prepared for delivery in Philadelphia on Monday.

Harker emphasized that the U.S. has continued to grow in spite of global headwinds and he called the labor market “extraordinarily dynamic.” His remarks follow several other speeches by Fed official emphasizing the possibility of an interest rate increase at their June 14-15 policy meeting in Washington.

“If the economy follows the path I expect it to follow, monetary policy will be overly accommodative by historical standards,” Harker said. “That will set in motion the possibility of another risk, which is accelerating inflation and the need for aggressive policy actions.”

On inflation, which has consistently undershot the Fed’s 2 percent goal, Harker argued that the “math is in our favor” as energy prices rebound and dollar strength abates.

“I believe that, once energy prices stabilize and start reversing, inflation will return to our 2 percent target by sometime next year,” he said.

All of what he said was complete and utter nonsense. I truly doubt he believed any of it. Moreover, the market doesn’t believe it, as the market is only forecasting a 30% chance the Fed will move in June and a 46% chance in July. Clearly, three rate hikes over the next 6 months isn’t priced in.