Fed's Harker still sees a rate hike "at most" this year

(Reuters) – A hike in interest rates this year "at most" still makes sense given the favorable economic conditions in the US, said Monday an official of the US Federal Reserve, despite risks that keep him for the moment in the meantime.

Strong economic growth and a positive outlook could still maintain a rate hike on the table this year and another in 2020, Philadelphia US Federal Reserve Chairman Patrick Harker said in London. He also said that the Fed would make "no radical change in the near future" to the types of bonds it keeps on its $ 4 trillion balance sheet.

Harker's colleagues on the central bank's policy committee on Wednesday dropped expectations of interest rate hikes this year, citing signs of an economic slowdown.

Harker participates in the Fed 's political discussions but does not vote until next year. The markets consider that the next likely move of the Fed will be a rate cut.

Inflation is down slightly and business confidence is down, said Harker. The factors that led him to see the risks decline "very slightly downward" and the fact of supporting the pause of the Fed after nine increases since 2015 brought the rate 2.5 percent.

"I continue to be attentive," said Harker in a speech prepared to be presented at the Forum of Formal Monetary and Financial Institutions. "My current view is that at most a rate hike this year and one in 2020 is appropriate, and my position will be guided by the data as events and events unfold."

NEUTRALITY, FLEXIBILITY OF THE EDF BALANCE SHEET

Harker also proposed an update of the Fed's balance sheet. On Wednesday, the Fed announced that it would stop the steady decline in its bond holdings in September, while leaving open the question of what bonds it would want to keep in the long run and how fast it would try to reach.

The Fed will no longer agree to hold Treasury securities primarily for some time, according to Harker. The Fed bought mortgage backed securities at an unusual pace after the financial crisis to help stabilize the real estate market and the economy.

However, over time, Harker said the central bank should seek to retain bonds that would have a neutral effect and give it the ability to resort to the purchase of bonds again if rates fall near zero and if the economy needs stimulus.

To achieve this goal, Harker said the Fed should avoid taking the market on a particular stock or auction. The Fed could hold bonds with maturities in the same proportion as the broader treasury market, or the central bank could favor holding bonds with maturity in a year or less to give them more flexibility to buy longer-term bonds to stimulate the economy.