September 29, 2017 / 3:36 PM / 21 days ago

Fed's Harker says he still expects to raise rates in December

(Reuters) - Philadelphia Federal Reserve Bank President Patrick Harker said Friday he still has “penciled in” an interest rate hike in December, and three more rate hikes next year, in line with most of his colleagues at the central bank.

“Labor markets feel really tight,” and wage pressures are starting to appear, Harker said at a conference in Philadelphia on fintech.

Though the U.S. economy will take a hit during the third quarter after the devastating effects of several strong hurricanes, it will bounce back by the fourth quarter, he predicted. U.S. GDP grew 3.1 percent in the second quarter, and may grow at only half that pace in the third quarter, the New York Fed estimated Friday.

Low inflation is a concern, Harker said, especially since in his view there is good evidence that the Fed may be under-estimating productivity, which means it may also be over-estimating inflation. It is appropriate for the Fed to take a pause on raising rates as it begins to shrink its $4.5 trillion balance sheet, he said.

Nevertheless, he said he expects inflation to resume rising back to the Fed’s 2-percent goal, and so his working forecast is for the Fed continue to raise rates gradually.

The Fed last week left rates unchanged, at between 1 percent and 1.25 percent, but signaled more rates hikes again despite an ongoing internal debate about the outlook for inflation.

Reporting by Ann Saphir; Editing by Chizu Nomiyama

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