Fed's Harker: Central bank likely on track for rate cut this year

By Michael S. Derby

(Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday a rate cut is the next step for monetary policy, although he declined to say when the central bank will be able to lower the cost of short-term borrowing.

“I believe that we may be in the position to see the rate decrease this year,” Harker said in a speech text to be delivered before the 2024 Lyons Center for Economic Education and Entrepreneurship, held by the University of Delaware. “But I would caution anyone from looking for it right now and right away,” he said, adding “we have time to get this right, as we must.”

Harker, who does not hold a voting role on the rate-setting Federal Open Market Committee this year, spoke on a day where a number of Fed officials were also weighing in on the outlook for the economy and monetary policy.

On Wednesday the Fed released minutes from its January FOMC meeting that showed officials eying rate cuts, albeit cautiously. Fed Chair Jerome Powell has already taken the Fed’s March meeting out of the running for action, and markets are currently expecting an easing to come some time in the summer.

Harker drove home the point that when the Fed cuts rates it needs to act at the right time. “I find our greatest economic risk comes from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes,” he said.

The bank president said that inflation is moving back to the 2% target but he still wants more evidence it is doing so durably. He noted the so-called last mile of hitting the target could be challenging. He said recent higher-than-expected consumer price level inflation was a reminder that progress on lowering price pressures can be bumpy and uneven.

Harker also said U.S. growth continues to be strong, and the robust labor markets are coming into better balance. Harker also said news of job layoffs doesn't look a recessionary signal to him, adding that he views the consumer sector as strong.

Harker also weighed in on the Fed’s balance sheet drawdown effort, which sees the central bank trimming its bond holdings to withdraw liquidity from the financial system. He said market liquidity levels remained strong, and echoing the meeting minutes, he expressed support for slowing the pace of the drawdown before stopping it.

(Reporting by Michael S. Derby; Editing by Andrea Ricci)