MNI: Fed's Harker Still Leaning Against Further Rate Hikes

Philadelphia Fed President Patrick Harker on Wednesday again argued the Federal Reserve should stop raising interest rates and hold them at their current 22-year highs, while warning rate cuts are not forthcoming in the near future.

"While I see us on the path of taming inflation and protecting our economic underpinnings, I would also caution that a decrease in the policy rate is not something that is likely to happen in the short term," he said in prepared remarks. "I ascribe to the position that rates are going to have to remain higher for longer, as the other downward pressures on inflation work in tandem with the current policy rate to return our economy to balance."

Harker said the U.S. is experiencing a slow but steady disinflation to below 3% year-over-year in 2024, and as interest rates remain in restrictive territory they will continue to put a damper on inflation. "Yes, this economy is proving to be resilient and at times unwilling to bend to the will of economic models, but I believe that the path we are on is the correct one," he said, expecting GDP growth to cool off in the coming quarters, but no recession. (See: MNI INTERVIEW: Fed Done Hiking, Eyes Long Hold-Ex-IMF Official)

HOLDING RATES STEADY

"I am not going to be swayed easily by a single month’s worth of data. One month can just be an outlier and not a harbinger," he said. "Holding the rate steady will give those lags time to catch up. It will allow us to make more measured and educated policy rate decisions going forward — decisions, which I must add, could go either way, depending upon what the data tell us." (See MNI POLICY: Fed Convinced Past Hikes' Full Effect Still To Hit)

The Philly Fed chief pointed to lurking uncertainties. While the settlement of the auto worker strikes is positive, there are still other labor actions such as the actors' strike that are slowing other industries, Harker said.

"We are also now only nine days away from a potential federal government shutdown, the impact of which would only grow the longer it goes on and could potentially trim a full percentage point off fourth quarter GDP. And of course, there are international issues that can impact our own economy."