© Reuters. Federal Reserve Bank of Philadelphia President Patrick Harker stands behind the Jackson Lake Lodge in Jackson Hole, the place the Kansas City Fed holds its annual financial symposium, in Wyoming, U.S. August 24, 2023. REUTERS/Ann Saphir/File Photo
By Michael S. Derby
(Reuters) -Federal Reserve Bank of Philadelphia President Patrick Harker stated on Thursday a charge reduce is the subsequent step for financial coverage and the timing of that motion is getting nearer, though he declined to say when the central financial institution will have the ability to decrease the price of short-term borrowing.
“I believe that we may be in the position to see the rate decrease this year,” Harker stated in a speech given earlier than the 2024 Lyons Center for Economic Education and Entrepreneurship occasion, hosted by the University of Delaware. “But I would caution anyone from looking for it right now and right away,” he stated. “We have time to get this right, as we must.”
In comments after his formal remarks, Harker said a May rate cut was possible but not likely, as he’s eyeing the start of action some time in the second half of the year.
Harker said he needs a couple more months to gain confidence the economy will support an easing. Whatever the Fed does will be driven by incoming data, he said, adding when it comes to a cut, “I feel we’re shut, give us a few conferences.”
Harker, who does not hold a voting role on the rate-setting Federal Open Market Committee (FOMC) this year, spoke on a day in which a number of Fed officials were also weighing in on the outlook for the economy and monetary policy.
On Wednesday the Fed released minutes from its January FOMC meeting that showed officials eying rate cuts, albeit cautiously. Fed Chair Jerome Powell has already taken the Fed’s March meeting out of the running for action, and markets are currently expecting an easing to come some time in the summer.
Harker drove home the point that when the Fed does cut rates it must act at the right time. “I find our greatest economic risk comes from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes,” he said.
The bank president said that inflation is moving back to the 2% target but he still wants more evidence it is doing so durably. He noted the so-called last mile of hitting the target could be challenging.
Recent higher-than-expected consumer price level inflation was a reminder that progress on lowering price pressures can be bumpy and uneven, he said.
When it comes to gaining confidence inflation is on track for 2%, he said he was not looking for much more data. “I simply needed to get a pair extra months” of stories to make sure.
Harker additionally stated U.S. progress continues to be robust, and the strong labor markets are coming into higher steadiness. Harker additionally stated information of job layoffs does not look to be a recessionary sign to him, including that he views the patron sector as robust.
Harker additionally weighed in on the Fed’s steadiness sheet drawdown effort, which sees the central financial institution trimming its bond holdings to withdraw liquidity from the monetary system. He stated market liquidity ranges remained robust, and echoing the assembly minutes, he expressed help for slowing the tempo of the drawdown earlier than stopping it.
Harker stated that was necessary as a result of there may be nice uncertainty in regards to the level the place liquidity will develop too tight in markets.