MNI: Harker-Fed Can Hold Rates Steady, Supports High-For-Long

Federal Reserve Bank of Philadelphia President Patrick Harker said Friday that recent data supports holding interest rates at their current level but but added they will need to stay high for a while.

"Absent a stark turn in what I see in the data and hear from contacts, both in one-on-one conversations and in forums like this, I believe that we are at the point where we can hold rates where they are," he said in prepared remarks. "By doing nothing, we are still doing something. And, actually, we are doing quite a lot."

"I do subscribe to the new moniker, 'higher for longer.' I didn’t coin it, but my expectation is that rates will need to stay high for a while," he said in remarks for the Delaware State Chamber of Commerce.

Harker said a steady disinflation is under way and he expects it to continue with inflation dropping below 3% in 2024 and leveling out at the Fed's 2% target thereafter. While this week's CPI report came out modestly on the upside, "I do not want to overreact to the normal month-to-month variability of prices," he said.

STEADY DISINFLATION

Harker is expecting GDP to pull back slightly in 2024, but no recession, as unemployment increases slowly over the next year to peak around 4.5% before heading back toward 4% in 2025. Harker suggested the unemployment increase would come from greater labor supply. (See: MNI INTERVIEW: Higher Rates Finally Begin To Bite US Firms)

"Economic activity has been resilient. Labor markets are coming into better balance," he said.

"I am happy to say that so far economic and financial conditions are evolving as I expected, if not perhaps even a tad better," Harker said, while not specifically commenting on recent Treasury yield moves. Harker does not think the U.S. has entered a new era of higher rates. "From the cold lens of economics, I do not see the fundamental changes that would call for large changes in natural rates."