By Michael S. Derby
NEW YORK Federal Reserve Bank of Philadelphia President Patrick Harker said Friday he believes the central bank is likely done with rate hikes amid an ongoing waning in price pressures.
“Absent a stark turn in what I see in the data and hear from contacts,” Harker said in a speech text, “I believe that we are at the point where we can hold rates where they are.”
“It will take some time for the full impact of the higher rates to be felt,” the official said, adding “holding rates steady will let monetary policy do its work,” and as monetary policy is now restrictive, “we will steadily press down on inflation and bring markets into a better balance.”
“By doing nothing, we are still doing something,” Harker said, adding “we are doing quite a lot.”
Harker weighed in as markets are actively debating whether the Fed will raise rates again. At their policy meeting last month officials held their overnight target rate range steady at between 5.25% and 5.5% amid softening inflation pressures. They also penciled in one more increase this year and projected their target will stay higher for longer than they expected at the start of the summer.
Harker noted he supports the Fed’s longer-range expectations for monetary policy, while flagging the uncertainty of how long rates will need to remain elevated.
Recent data, while showing strength, has driven home to many in markets the prospect the Fed is done, and a number of Fed officials, pointing to higher bond yields, which make credit more expensive and a greater headwind to growth, have signaled they could also be done with hikes.
In his speech, Harker was upbeat about the economy while pointing to a series of risks, noting “disinflation is under way. Economic activity has been resilient. Labor markets are coming into better balance.”
Harker said he sees a “steady disinflation” that will take price pressures below 3% this year and to 2% after that. He said he expects growth to continue this year but at a slower pace next year, adding “even as I foresee the rate of GDP growth moderating, I do not see it contracting. I do not anticipate a recession.”
In his remarks, Harker noted labor strikes and the restart of student loan payments could weigh on the economy. He said the jobless rate will likely rise a touch to about 4% while adding he does not see mass layoffs coming.
(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)
