File Photo: Federal Reserve System
If his economic projection holds, Philadelphia Fed President Patrick Harker indicated Monday that the Fed could drop its benchmark interest rate once this year.
“If all of it happens to be as forecasted, I think one rate cut would be appropriate by year’s end,” Harker said in prepared remarks to a Philadelphia regional central bank event. He expects slowing but above-trend economic growth, a modest unemployment rate rise, and a “long glide” back to target for inflation.
At its policy meeting last week, the U.S. central bank maintained interest rates in the 5.25–5.50% range to keep the economy under pressure to lower inflation to the Fed’s 2% target. In April, the Fed’s preferred inflation rate was 2.7%.
While last week’s Consumer Price Index number was “very welcome,” Harker said inflation has been low so far this year and he needs to evaluate additional data in the coming months to make a judgment given the choppiness.
Harker noted that the Fed’s policy rate should remain steady to offset upside risks, including chronic shelter inflation and “the continually high rate of inflation in the services sector, notably auto insurance and repairs.”
Harker did not rule out altering his mind about rates when further economic data is seen. “I see two cuts, or none, for this year as quite possible if the data break one way or another. We will remain data dependent,” stated.
At the previous policy meeting, the median expectation among the Fed’s 19 officials was one interest rate drop this year, while financial markets expect two.
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