Fed's Harker Says Rates Should Remain Steady
By Michael S. Derby
Philadelphia Federal Reserve leader Patrick Harker said Monday the U.S. economy is in a good place right now and he sees no reason for the central bank to change its interest-rate target for now.
"My own view right now is that we should hold steady for a while and watch how developments and the data unfold before taking any more action, " Mr. Harker said in the text of a speech prepared for delivery before an event in Delaware.
Mr. Harker is a voting member of the rate-setting Federal Open Market Committee this year. The Fed lowered rates three times in 2019 to give an otherwise healthy economy some protection from trade-policy uncertainty and slowing global growth.
Mr. Harker, like a number of officials, was skeptical of the need for those rate cuts, saying last year he didn't see lowering borrowing costs doing much to spur activity when uncertainty about the future was the main source of trouble.
Fed officials so far have given few hints they want to change rates this year. The Fed's official outlook in December projected the federal-funds target-rate range would hold steady at between 1.50% and 1.75% this year. But financial markets, spooked by China's coronavirus and other factors, see rate cuts coming by year-end, according to the fed-funds futures market. So far, no Fed officials have joined that view.
Mr. Harker said "it's too early to say what impact the spread of the coronavirus will have on the global economy, but the negative effects on the Chinese economy and international travel are something to watch."
But for the most part, Mr. Harker sees good things for the year.
"I think the economy is in good shape," Mr. Harker said. "We are in the longest economic expansion on record, and I see growth returning to trend of about 2% this year." Mr. Harker said recent job-market data has been good but he nevertheless expects monthly job gains to moderate. He said the jobless rate, now at 3.6%, will stay under 4% for the next couple of years.
Mr. Harker said price pressures also are pointing up. "We haven't quite met our 2% inflation target, but we're on track to get there. While the process has been a slow one, I still believe that the inflation rate will rise to meet our goal," he said.
The official also said that mortgage refinancing, tied to lower Fed rates, will be a plus for the economy.
Philadelphia Fed research says that with no change in mortgage rates about 60% of homeowners may refinance this year, and over the next couple of years that could boost the overall consumption level by $11.2 billion. "On an individual level, an average homeowner would have about $2,000 to spend in extra consumption within the first year after refinancing -- a nice lift to almost any budget," Mr. Harker said.