Philadelphia Federal Reserve President Patrick Harker said on Tuesday he favors a 'methodical' series of quarter-percentage-point interest rate increases, but is open to larger half-percentage-point hikes if inflation does not soon show signs of easing.
The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, U.S., January 26, 2022.
What Harker sees as a "deliberate, methodical" move higher in that policy rate began on March 16 when the Fed lifted it by 25 basis points, moving away from the near-zero rate put in place to limit the economic damage from the pandemic. But he also said that the Fed needed to lift rates "as quickly as possible" to a neutral level, which he estimated at around 2.5%, and tighten financial conditions even further by beginning to reduce the central bank's nearly $9 trillion balance sheet "sooner than later."
The spread between 10-year and 2-year Treasury bonds on Tuesday was nearing zero. When it dips below zero, it indicates some loss of faith among investors in future economic growth.
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