Background

Philadelphia Federal Reserve President Patrick Harker expressed his belief that the central bank can stop raising interest rates. He made these remarks during a speech at the Delaware State Chamber of Commerce. Harker’s opinions carry weight as he is a voting member on the rate-setting Federal Open Market Committee.

A Halt in Rate Hikes

Harker’s comments align with the views of several other officials. However, his remarks are the most explicit endorsement yet of pausing rate hikes. The Federal Reserve has increased its benchmark borrowing rate 11 times since March 2022, totaling 5.25 percentage points. In September, the Federal Open Market Committee chose to hold rates steady due to differing opinions on inflation.

The Impact of Financial Conditions

Harker acknowledged that the tightened financial conditions resulting from a surge in Treasury yields have aided the central bank in its efforts to slow the economy and reduce inflation. However, he emphasized that the Fed’s rate hikes have achieved substantial progress in reducing prices without causing a surge in unemployment or negatively impacting the economy. Harker believes the Fed should now assess the effects of its rate hikes using incoming data to guide future policy decisions.

The Importance of Holding Rates Steady

In Harker’s opinion, maintaining steady rates allows monetary policy to accomplish its objectives. He believes that current policy rates are restrictive and that they will steadily reduce inflation and bring markets into better balance. Harker argues that by doing nothing, the Fed is actually making significant progress. Recent reports indicate that inflation rates are gradually declining but are still above the Fed’s target of 2% per year. Harker remains cautious about overreacting to short-term price fluctuations and emphasizes the importance of being data-dependent, patient, and cautious.

The Fed’s Focus on Risks

Harker stated that the Federal Reserve remains attentive to various risks, including banking turmoil, rising credit card balances, and labor disputes. However, he believes that the overall economy remains resilient. While he expects some increase in unemployment as labor market imbalances are resolved, he does not foresee any immediate cuts to rates. Harker subscribes to the belief that rates will need to remain high for an extended period, but he is prepared to support further rate increases if inflation were to rebound.