NEW YORK- Philadelphia Federal Reserve Bank President Patrick Harker said in New York on Friday he opposed the central bank’s September rate cut and thinks the Fed should “hold firm” on interest rates.
The disclosure by Harker, who is not a voting member of the Fed’s policymaking committee this year, puts him in the same camp as Boston Fed President Eric Rosengren and Kansas City Fed President Esther George who voted against the rate decrease last week. Harker will have a vote on interest rates in 2020.
Harker painted the picture of an economy that is on track to grow by a little over 2 percent this year, powered by strong consumer spending and a robust labor market. He said that while inflation is currently below target, he expects it to reach the coveted 2 percent growth level over the next 18 months to two years.
“The labor market continues to show remarkable strength, and we’re creating jobs above the rate we need to keep pace with growth,” he said. “My own view is that we should hold firm, letting things settle and watching how events play out.”
The Federal Reserve cut interest rates last week for the second time this year, after reducing them in July for the first time since the Great Recession.
The Fed official said uncertainty over trade policy is affecting business decisions, but he expressed skepticism that lower interest rates would do much to reverse a downturn in business investments.
“I think the issues we are facing right now in the economy have little to do with the stance of monetary policy,” he said. “I think the best thing for us to do is to let the economy ride.”
Harker also addressed the recent volatility in money markets, saying that he doesn’t think it has wider implications for the economy.
“The obvious question that arises — and indeed has been asked — is whether the current level of reserves is appropriate,” he said. “And whether the Fed might need to expand its toolkit to better manage interest rates.”
Harker said that creating a standing repo facility that banks could turn to any time they need cash, “could provide a backstop against unusual spikes in the federal funds and other money market rates.” Still, he said discussions are in their “infancy” and that more work needs to be done to determine how such a program would be designed.
His comments come at a time when financial firms are anxious to know how the Fed will improve liquidity over the long term. – Reuters