President of the Philadelphia Fed Harker keeps his position on modest interest rate increases.
Patrick Harker, president of the Philadelphia Federal Reserve, discussed the current jobs report and how it could affect the approach taken by the U.S. central bank. Harker said that his opinion on shifting toward smaller interest rate rises remains intact despite the positive jobs data that was released last week.
As the Driving Force, Inflation
Inflation, according to Harker, is the main cause of the rate increases, and there are already some early indications that it is starting to decline. He claimed that the Fed can control inflation at a pace of 25 basis-point rate increases without harming the labor market in a recent interview with Reuters.
A risk management strategy that uses smaller rate increases
Harker claims that the Fed’s shift to more gradual rate increases is related to “risk management.” To lower inflation to its 2% objective, the U.S. central bank implemented many 75-basis-point and 50-basis-point rate rises in 2017. The bank did, however, announce a lesser rise last week of 1/4 percentage point.
Concern Over Recent Rate Increase
Recent jobs figures sparked doubts about the 25-basis-point rate increase and fueled rumors that the Fed will act more forcefully in the future. Fed officials anticipate a rise in unemployment as a result of their rate increases, which they believe will balance supply and demand in the economy.
Rate Rise to Over 5% and Potential Rate Cuts
Harker predicted in the interview that the Fed’s policy rate will rise to over 5% and stay there for some time. He did add, though, that the potential of the Fed decreasing rates to prevent monetary policy from limiting economic activity may arise given that inflation is predicted to decline and return to 2% over the course of the next couple of years. According to Harker, a steady decline in the federal funds rate might be observed in 2024 rather than this year.
No Recession in the Offing
Harker reaffirmed his assertion that he doesn’t think the economy will enter a recession. He cautioned against forecasting the direction of the economy using straightforward benchmarks like bond rates or the unemployment rate. Any advances, he said, would fall short of a recessionary rise.