Patrick Harker, President of the Federal Reserve Bank of Philadelphia, August 24, 2023.
David A. Grogan | CNBC
Philadelphia Federal Reserve President Patrick Harker said Friday he believes the central bank can stop raising interest rates.
“Without a significant shift in what I’m seeing in the data and hearing from contacts… I believe we’re at the point where we can keep interest rates where they are,” Harker said in prepared remarks for the Delaware State Chamber of Commerce. “Look, we accomplished a lot, and very quickly.”
As a voting member this year on the Federal Open Market Committee, which sets interest rates, Harker’s words carry particular weight as policymakers consider their next step forward. Although his comments are consistent with what several other officials have said recently, they are perhaps the clearest endorsement yet of a halt to interest rate hikes.
The Fed has raised its key interest rate eleven times since March 2022, by a total of 5.25 percentage points. In September, the FOMC decided to keep interest rates stable as members disagreed about where inflation was heading.
In recent days, several Fed officials have suggested that tighter financing conditions caused by the rise in Treasury yields are helping the central bank in its push to slow the economy and reduce inflation.
However, Harker did not rely on market moves, instead saying the Fed had simply made significant progress in cutting prices without triggering a spike in unemployment or otherwise weakening the economy. He said it can now monitor the impact of its rate hikes and use the incoming data to guide where policy needs to go.
“If you keep interest rates stable, monetary policy can have its effect. I am sure that the key interest rates are restrictive and as long as they remain so, we will steadily push down inflation and bring the markets into better equilibrium,” he said. “By doing nothing, we are still doing something. And actually we do quite a lot.”
Reports this week showed 12-month inflation rates falling but still above the Fed’s annual target of 2%. Individual measures of producer and consumer prices were both higher than Wall Street economists expected, raising the specter that the Fed may need to do more.
However, Harker said he would not be moved by a month’s worth of data, pointing out that the Fed’s preferred measure, the consumer spending price index, posted its smallest monthly increase since 2020 in August.
“We will not tolerate another price increase,” he said. “But secondly, I don’t want to overreact to normal month-to-month price fluctuations.”
“We remain data dependent, but are patient and careful with the data,” he added.
Harker noted that the Fed remains prepared for a variety of risks, from the banking turmoil earlier this year to rising credit card balances and labor disputes. But he said the economy has held up overall and he expects unemployment to rise at most slightly as more people enter the job market and labor market imbalances narrow.
Still, he gave no indication that he expects cuts soon.
“I’m subscribing to the new nickname ‘higher for longer.’ “I haven’t coined it, but I expect interest rates will have to stay high for a while,” he said.
However, he added that he would have “no hesitation in supporting further rate hikes” if inflation rises again.