Philadelphia Fed president says policy remains restrictive enough to control inflation
Federal Reserve Bank of Philadelphia President Patrick Harker cautioned against reading too much into January’s hotter-than-expected inflation report, arguing that seasonal adjustments and short-term fluctuations may be distorting the bigger picture.
Harker also reaffirmed his support for keeping interest rates steady, arguing that monetary policy is still doing its job to slow inflation.
Despite expectations that rates will decline in the long run, Harker said the Fed has no immediate need to make adjustments. He noted that after last year’s three rate cuts, policy remains “restrictive,” meaning borrowing costs are still high enough to cool inflation and moderate economic growth.
“These are reasons enough for holding the policy rate steady,” Harker said at an event in the Bahamas. “And while I won’t commit to a specific timetable, I remain optimistic that inflation will continue a downward path and the policy rate will be able to decline over the long run.”
His comments echoed Federal Reserve chair Jerome Powell’s recent remarks, reinforcing the idea that the central bank wants more confirmation that inflation is under control before moving ahead with further cuts.
“I would say we’re close, but not there on inflation,” Powell said last week. “Last year, inflation was 2.6% - so great progress - but we’re not quite there yet. So we want to keep policy restrictive for now.”
The Fed’s cautious stance comes amid an unexpectedly strong inflation reading for January, which showed prices rising at their fastest pace since August 2023.
The core consumer price index (CPI), which excludes food and energy, climbed 0.4% last month, marking the highest increase since March. Prices for housing, prescription drugs, car insurance, and groceries all surged, with egg prices seeing a particularly sharp rise.
Despite this jump, Harker said he remains skeptical that the data signals a major shift in inflation trends. He suggested that seasonal adjustments may be distorting the true picture, noting that January’s inflation numbers have historically come in stronger than expected.
“In the last decade, CPI inflation in January has surprised on the upside nine out of 10 times,” said Harker. “My conjecture is that seasonal adjustments are struggling to keep up with a fast-changing economy, and we need to parse the underlying trends from the month-to-month noise.”
Read more: US inflation picks up pace, lowers chance of Fed cut
For now, Fed officials are sticking to a wait-and-see approach, keeping rates steady after cutting them by a full percentage point in late 2024.
Harker believes that current policy is set at the right level to bring inflation back to the Fed’s 2% target over the next two years – provided the economy continues on its expected path.
Powell has also emphasized that the Fed is in no rush to cut rates further, given that inflation is still slightly above target and economic growth remains stable.
“We do not need to be in a hurry to adjust our policy stance,” Powell said last week, doubling down on comments he made before the Senate Banking Committee.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
