Near the retirement at the end of the month, the president of the federal reserve from Philadelphia, Patrick Harker, said that interest rates are still a possibility this year, amid an uncertain economic scenario, and has been concerned about the quality of economic data used in decision making.
When it comes to relaxing monetary policy, “it’s possible, I would never discard it,” Harker said in an interview with Reuters on Thursday (5). “If the signs are that inflation doesn’t seem to be rising quickly, but unemployment, so yes, I could definitely predict one or more cuts this year, but it’s hard to say right now.”
Harker was interviewed in the last weeks of his term, as he should retire at the end of June, after taking command of the Philadelphia Fed in 2015. The Fed will meet again on June 17 and 18, when the overall expectation is for the institution to keep interest between 4.25% and 4.50%. In 2025, Harker is not a voter member of the Fed Fed Federal Market Committee (FOMC), responsible for defining interest.
According to him, what will happen at the end of the year is unknown, as the chaotic trade policy of, with high import taxes and repeated changes, will probably increase inflation and reduce employment.
The issue that Fed authorities face is whether increased inflation is punctual or if it is the beginning of something more lasting. These uncertainties have impaired the authorities’ ability to provide guidance on monetary policy perspectives and led them to signal an attitude of waiting to see.
Harker, a training engineer who led the University of Delaware before reaching the Fed, said in the interview that he was increasingly concerned about the quality of the data in which policy formulators generally trust.
The numbers, including those produced by the government, “are not good, they are not improving,” Harker said. “These are not just inflation data, but a number of data, so we are increasingly blinded, or at least blind.”
Harker’s concerns about the state of the data arise following reports that the government was cutting resources dedicated to compilation of closely monitored consumer price index.
Tax concerns
Harker leaves office at the end of the month due to Fed rules that, in most cases, prevent the institution’s regional presidents from staying in office after age 65. He will be succeeded by Anna Paulson, a former central bank employee who led the research operation at the Chicago Fed.
Reflecting on his decade in the Central Bank, Harker said the period since Donald Trump returned as president stood out as even more challenging than the pandemic years, when it became clearer what the Fed needed to do to, at least at the beginning.
But the mistaken interpretation of after the pandemic gave him a crucial lesson, which was the importance of collecting and taking into account qualitative economic data and what people are saying that it is happening, in relation to high level statistical data, or quantitative.
Looking to the future, Harker said it is essential that the Fed educate people about what it can and cannot do, otherwise its independence may be threatened due to the belief that it is all powerful when it comes to the economy.
There is a feeling that “the Fed is an almighty being who controls his life, which is not true,” said Harker. “It should not be true, and it is not, but to dissipate it, we have to keep the thing as simple as possible” and explain “what we do and what we do not do.”
“And I think we have to send this message loud and sound,” he added.
Harker also said he hoped that when the Fed uses the purchase of titles and his balance to help the economy, do so in moderation, with a clear explanation of what he is doing.
Harker also said in the interview that the threats of huge government deficits are growing and need to be addressed. According to him, the time to do this is running out.
“I’m very worried about the deficit,” Harker said. “I don’t think we are at risk today, but we may be at risk in the not too distant future if we don’t act.”
The Fed leader also noted that market and wall street prices are starting to send signs of problems that should not be ignored.
