Fed’s Harker favours steady rate stance, doesn’t see near-term rate cuts

FEDERAL Reserve Bank of Philadelphia President Patrick Harker said on Wednesday (Nov 8) the central bank’s recent decision to hold rates steady was the right choice, and he reiterated that now is a time for the Fed to take stock of its aggressive actions before deciding what’s next for monetary policy.

Harker, noting that he had been among the first to say ahead of the last meeting that no increase was needed, said staying at the current policy settings “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.”

Harker, who holds a vote on the rate-setting Federal Open Market Committee, made his comments in a speech prepared for delivery before the Northwestern University Transportation Centre.

They were his first public comments since the Fed last week held its overnight rate target steady at between 5.25 per cent and 5.5 per cent for a second straight meeting.

Officials preserved the option for more increases but ebbing inflation pressures have driven many investors to believe the Fed is done. There’s even active speculation the Fed could cut rates next year.

In his speech, Harker cautioned market participants to not get ahead of themselves. “A decrease in the policy rate is not something that is likely to happen in the short term,” he said. “I ascribe to the position that rates are going to have to remain higher for longer” to help the Fed accomplish its mission of lowering inflation.

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Harker laid out a fairly positive outlook in his remarks. While he expects growth to slow, he does not see the economy tipping into recession. He believes inflation will ebb to 3 per cent next year and back to the Fed’s 2 per cent target after that.

On the jobs front, Harker expects the jobless rate, at 3.9 per cent in October, will rise to 4.5 per cent next year before moving back toward 4 per cent.

Harker said “confident” consumers can likely help the Fed achieve its goal of a soft landing for the economy. But he added that with strong consumer spending powering recent strong growth, “time will tell if have exhausted their pandemic-era savings” and will have to start moderating spending levels. REUTERS