MNI: Fed's Harker Warns Great Risk To Cutting Rates Too Early

Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday benchmark interest rates may well be lowered this year but warned that doing so too soon can lead to a resurgence of inflation that the Fed has fought so hard to contain over the past year.

"I find our greatest economic risk comes from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes," Harker said in remarks prepared for a University of Delaware event in Newark, Delaware.

"Yes, I believe that we may be in the position to see the rate decrease this year. But I would caution anyone from looking for it right now and right away. We have time to get this right, as we must."

Inflation has improved significantly over the past year and core PCE inflation has been running at target over the last six or seven months, he noted. But the latest CPI report was surprisingly strong, so "it is important that we see more evidence, allowing us to look past the vagaries of monthly data and ensure we continue on the right path."

Harker said he's looking closely at transportation, food and shelter costs -- those that matter most to the majority of Americans. Transportation prices are still rising faster than usual, while food inflation is generally back to normal, and shelter inflation also remains elevated, he said.

Consumer and business expectations for inflation this year are lower than in 2023, which is a good sign. The Philly Fed chief added he's hearing from contacts that consumers continue to spend and employers are still hiring and trying to hold on to existing workers, even if people are switching to different brands to find better deals and firms are now more selective.

"I do believe we may be near the point where we can adjust the policy rate downward. But when we will actually arrive at that point, I cannot yet say," he said. (See: MNI INTERVIEW: Fed Seen Patient As Price Views Sticky - UMich)