Fed will only need to hike rates twice in 2018, Philly Fed's Harker says

The US central bank will only need to hike rates twice in 2018 and the risk of persistently soft inflation needs to be closely monitored, a top US central bank official said.

In a speech on Friday, the president of the Federal Reserve bank of Philadelphia, Patrick Harker, said his personal view was that inflation would run slightly above the Fed's target in 2019 and below that level in 2020.

However, he added that "I am more hesitant in this view than I am on economic activity. If soft inflation persists, it may pose a significant problem."

Given the possibility that the economy was now in a "new economic normal", characterised by low level of natural interest rates, which refers to the returns that can be obtained from capital, Harker also emphasised the need to reevaluate the central bank's policy framework, although he explicitly stated he was not pushing for any changes.

"Market interest rates have been trending downward for years, starting long before the recession and appearing to have continued through the crisis and the current expansion. That obviously pulls us closer to the zero lower bound and leaves us with less policy ammunition in an unexpected turn of events or, worse, a full-blown crisis," he explained.

Harker also pointed out how inflation was continuing to run below target not just in the US, but also globally.

Speaking before the American Economic Association, the president of the Federal Reserve bank of Philadelphia, Patrick Harker, said those changes might include inflation targeting, price-level targeting or assymetric loss functions.

He also emphasised the need for clear Fed communications relating to any changes.

During his speech, the rate-setter also said he saw "very little slack left" in the jobs market, going on to predict that the jobless rate would remain low before rising by a few tenths of a percentage point some time after 2018.

Harker did not hold a vote on the Federal Open Market Committee in 2018.