Fed’s Harker says downward trend in inflation could be ‘transitory’

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC
FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

May 6, 2019

(Reuters) – Some recent weakness in U.S. inflation could be “transitory,” suggesting no reason to adjust monetary policy at this point, one top Federal Reserve policymaker said on Monday.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said he is keeping his medium-range inflation and near-term growth forecasts unchanged, giving further support to a statement on inflation last week by Fed Chairman Jerome Powell that took markets by surprise.

“If any component of the outlook were to affect my view on the appropriate path of monetary policy, it would be inflation,” Harker said in remarks prepared for delivery at a monetary and trade conference in Philadelphia. “However, we’re not there yet, and it would take more data to convince me. I therefore continue to see one increase at most this year; possibly one, at most, next.”

Powell surprised markets last week by saying that lower inflation trends could be explained partly by “transitory” factors, including fund management fees, apparel prices and air fares. The remarks were seen by some investors as more aggressive on possible inflation risks than expected. Harker said he suspects that is true.

And while Harker still sees a strong labor market and described initial data on first-quarter U.S. economic growth as “a pleasant surprise,” he said it is possible that some of the trade-related factors driving that growth could prove temporary and slow in the second quarter.

(Reporting by Trevor Hunnicutt in New York; Editing by Chizu Nomiyama)

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