The Federal Reserve Bank of Philadelphia supports stabilizing US interest rates
Federal Reserve Bank of Philadelphia President Patrick Harker said on Friday that he believes the bank can stop raising interest rates and stabilize them at their current levels.
Harker said in his prepared statement to the Delaware State Chamber that in the absence of any significant shift in the data and feedback he is receiving, he believes they have reached a turning point where it is appropriate to maintain current interest rates. Harker emphasized that they had done a lot to reduce inflation, and very quickly.
As a voting member this year of the Federal Open Market Committee, which sets interest rates at the world’s largest central bank, Harker’s words carry added weight at a time when the Federal Reserve is preparing to make an interest rate decision, due on the first of next month. Although his comments are in line with what several other bank officials have said recently, they are perhaps the clearest endorsement yet of stopping interest rate hikes.
The Federal Reserve has raised its benchmark borrowing rate 11 times since March 2022, with the rate currently reaching a range of 5.25%-5.50%. In September, the Federal Open Market Committee chose to keep interest rates steady because members disagreed about the direction in which inflation was heading.
Recently, many Federal Reserve officials have pointed to the tightening financial conditions resulting from rising US Treasury bond yields as helping the central bank in its quest to slow the economy and reduce the inflation rate.
However, Harker did not rely on market movements, but instead said that the Fed had simply made significant progress in lowering rates, without causing unemployment to rise or harming the economy. He said he could now watch the impact of raising interest rates, and use the incoming data, as evidence of the direction monetary policy should take.
Harker pointed out that keeping interest rates constant will allow monetary policy to achieve its goals, stressing that “interest rates are currently restricted, and as long as they remain so, the Federal Reserve will steadily pressure inflation and achieve a better balance for the markets.”
“By doing nothing, we are still doing something, and in fact, we are doing a lot,” Harker said.
The latest government reports showed inflation rates falling for 12 months in a row, although they are still higher than the Federal Reserve’s annual target of 2%. The latest readings of producer and consumer prices were higher than Wall Street economists had expected, raising the possibility that the Fed might have to do more.
However, Harker said he would not be influenced by one month’s data, noting that the Fed’s preferred measure, the Personal Consumption Expenditures price index, in August showed the smallest monthly increase since 2020.
He added: “We will not tolerate prices accelerating again, but again, I do not want to overreact to the natural fluctuation of prices from month to month.”
He added: “We are still relying on data, but we are patient and cautious.”
Harker noted that the Fed remains aware of a variety of risks, from banking turmoil earlier this year to rising credit card balances and labor strikes. But he said the economy overall has held up, and he believes unemployment will rise at most as more people enter the labor market, and the imbalance in it is disturbed.
However, Harker gave no indication that he expects cuts any time soon, and said he agreed with the new slogan “higher interest for longer,” but it was not used. He stressed that his expectations are that interest rates should remain high for a period of time, and he will not hesitate to support further increases in them, if inflation rises again.
2023-10-13 18:45:00
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