MNI: Fed's Harker-Rates Headed Lower Despite Upside Price Risk
MNI (WASHINGTON) - Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday he expects to lower interest rate further but noted concern over potential upside risks to inflation from wars and potential policy changes from the incoming Trump administration.
The pace of cuts will depend on data and how quickly inflation returns to the central bank's 2% target, Harker said.
"I still see us on a downward policy rate path. Looking at everything before me now, I am not about to walk off this path or turn around. But the exact speed I continue to go along this path will be fully dependent upon the incoming data," he said in remarks prepared for a New Jersey business conference.
"It’s just taking a little longer to get back to target than initially anticipated. And our overall goal is to make sure that we help ease out the bumps and keep ourselves traveling in as smooth a lane as possible. That means remaining data dependent, keeping our eyes open, and not acting with haste." (See: MNI INTERVIEW: Fed Won't Consider Cuts Until March - Benigno)
REMAIN CAUTIOUS
Harker, who steps down after a decade as chief of the Philly Fed bank at the end of June, judged the U.S. economy to be strong, with a labor market that is stabilizing and finding its balance after Covid.
But upside risks to inflation keeps him cautious.
"Inflation has proven to be a little bumpy," he said. The wars in Ukraine and the Middle East and instability of some governments in Europe are adding more uncertainty. "Here at home, we await potential policy changes which may have an economic impact. And dare I mention the impact that, say, a bird flu outbreak, on top of everything else, could have on food prices," he said.
That U.S. consumers have remained optimistic about their incomes is a bright spot, he said. Job creation has normalized and the rates at which workers transition from one employer to another in any given month is back to pre-pandemic levels.
"Labor markets seem to be stabilized and back, largely, in balance. Wage growth has settled out. We have not seen large-scale layoffs and employers appear committed to retaining the workers they worked hard to hire in the post-pandemic chaos," he said. "The unemployment rate is roughly where I predicted it would settle."