Fed's Harker: Rates will need to stay high for a while

Federal Reserve Bank of Philadelphia President Patrick Harker reiterated on Friday his preference to keep interest rates steady. “This is a time where doing nothing is doing something, and, in fact, I’d argue that it equates to doing quite a lot”, said Harker speaking at the Risk Management Association, in Philadelphia. 

Key takeaways from the speech: 

I remain rooted in my opinion that we are at the point where holding the policy rate steady is the prudent position to take. I arrived at this decision after carefully reviewing both the hard data and what I’ve been hearing directly from contacts throughout the Third District.

The available data for September have mostly come out stronger than I expected. The latest on retail sales confirms that households retained spending power and did not seem shy to use it over the summer. A resilient consumer is not a problem. Indeed, perhaps the key tenet of a soft landing is that households get to adjust their plan for when and how it best serves them — as opposed to the kind of drastic, unavoidable adjustments that come with, say, suddenly losing their job.

We are not going to tolerate a reacceleration in prices.

While I stand ready to revise my views and act accordingly if I see signs of reinflation, I am also not going to overreact to the normal month-to-month variability in data.

Prolonged labor strikes, the restart of student loan payments, and international events each come with their own set of economic effects. But we won’t necessarily know their extent for some time. We will need to see the data.

 A resolute, but patient, stance on monetary policy will allow us to achieve the soft landing that we all wish for our economy. 

Now, as for when I anticipate rates coming back down? That is a question to which I don’t yet have an answer. My forecasts are based on what I know as of now. And as time goes by, as adjustments are completed, as new data emerge, and as we gain additional insight on the underlying trends, I may need to adjust my forecasts, and with them, my time frames. Suffice it to say, rates will need to stay high for a while.

Market reaction

The US Dollar Index (DXY) is trading near 106.20, flat for the day, consolidating weekly losses. US Treasury yields are pulling back on Friday, with the 2-year at 5.12% and the 10-year at 4.95%.