Federal Reserve Bank of Philadelphia President and former University of Delaware President Patrick Harker made news today when he stated that the central bank’s interest rate increases, absent surprise data, may be ending.
An excerpt from his speech, entitled “On the path to a “soft landing,” gained attention in financial circles as business looks for signs that the long-running series of painful interest rate hikes is winding down. On the other hand, those with savings accounts have seen interest payments rise to the 4% range in some cases, well above the sub-1% rates paid in the past.
In prepared remarks at an event sponsored by the Philadelphia Business Journal, Harker joined a growing group in suggesting that the economy could see a soft landing rather than a recession.
“In sum, I expect only a modest slowdown in economic activity to go along with a slow but sure disinflation. In other words, I do see us on the flight path to the soft landing we all hope for, and that has proved quite elusive in the past. Now that you know what I expect,” Harker stated. “I can tell you what I believe: Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.”
A current member of the interest-rate-setting Open Market Committee, Harker, who also served as dean of the Wharton School at the University of Pennsylvania, has supported previous interest rate hikes and is not considered a Federal Reserve “dove.”
During remarks earlier this year at the annual Lyons Companies-University of Delaware forecast in Newark, Harker cited the need to get inflation under control, adding that the impact of rising falls heaviest on working families and those with lower incomes.
At that time, Harker saw signs of a mild recession in the coming months. That has not materialized as the rate of inflation cooled but did not lead to the usual increases in unemployment.
The labor market has loosened somewhat, and some sectors of the economy are seeing fewer struggles in finding staff. Exceptions come in entry-level jobs in hospitality, fast food, public safety, etc.
At the same time, Harker said he did not see any reason to loosen monetary policy in today’s speech.
“Allow me to be clear about one thing, however. Should we be at that point where we can hold steady, we will need to be there for a while. The pandemic taught us to never say never, but I do not foresee any likely circumstance for an immediate easing of the policy rate,” he said.
Much of Harker’s speech was focused on the Philadelphia economy and expressed concern about the commercial real estate market. Like others, he suggested that any recovery in vacancy rates and other metrics will be slow.
Harker also said a rise in credit card debt and a decline in the savings rate were not positive signs.
Harker added the usual disclaimer that his views do not reflect those of the Federal Reserve.
The rate hikes have drawn criticism from the left, including U.S. Sen. Elizabeth Warren, who has harshly criticized Fed Chairman Jerome Powell.
Click here for the text of Harker’s speech that offers insights into the behind-the-scenes thinking at the Fed. – Doug Rainey, chief content officer.
Correction: A Philadelphia Fed spokesperson said an earlier version of the lead paragraph indicating that the rate hikes are ending was incorrect and pointed to Harker’s statement that interest rate increase “may” be ending.