Central bank may be wise to hold off on second rate hike, Fed's Harker says

It might be wise for America's central bank to wait for signs of higher inflation before raising interest rates again, one of the Fed's newly-appointed rate-setters said on Tuesday.

Speaking at the University of Delaware, the president of the Federal Reserve bank of Philadelphia, Patrick Harker, said "it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike. I am approaching near-term policy a bit more cautiously than I did a few months ago."

Nonetheless, he expected the central bank to be able to raise rates more "meaningfully" in the backhalf of 2016, once financial and energy markets had stabilised.

Harker said he expected the Federal Reserve to be able to "truly normalise" in the second half of 2016 as inflation edged higher to 1.5%, unemployment declined to 4.7% and household consumption to increase by 2.7%, underpinning economic growth.

The Philly Fed president was appointed to his post in mid-2015 and would not have a vote on policy until 2017.

"I mean this in the sense that we can move away meaningfully from the zero lower bound."

Once that has been achieved then the Fed's reactions to incoming data could return to a more historical pattern.

"If there is anything that I believe would pose any risk to the forecast I will deliver, it would be the recent events on Wall Street coupled with the strong dollar and weakening growth in China. The effects that these developments may have on the U.S. economy are something that we continue to watch closely."