Fed’s Harker: Should hold rates steady for a while

Philadelphia Federal Reserve Bank President Patrick Harke a 2020 voter, has crossed the wires saying that the US economy is in good shape and that the Federal Reserve should hold rates steady for the time being, a top Fed official said on Monday. 

Harker said he expects economic growth to reach 2% this year and that the unemployment rate could stay below 4% for a couple of years, according to remarks prepared for a speech in Newark, Delaware –Harker, who became a voting member for policy decisions last year and thinks the US economy is on track to reach the central bank's 2% inflation target.

"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," 

– Harker. 

Key comments

• 2% economic growth seen in 2020.
• Economy on track to reach inflation target.
• Unemployment seen below 4% for the ‘next couple of years’.
• Should watch how developments, data unfold before taking action.
• Uncertainty over fiscal policies, trade & geopolitical tensions hold back business investment.
• Coronavirus’ negattive effects on Chinese economy are something to watch.

Additional comments after Wall Street close

If coronavirus situation gets worse we need to think about impact on US economy but we're not at that point now.

A rate cut would not do anything to boost business investment.

Businesses are struggling to find workers even after recruiting people off the sidelines.

Would support a rate increase of inflation started to show sustained growth, but we're not there yet.

Fed is growing balance sheet consistent with organic growth, not providing 'QE'.

Repo support from the Fed should be a backstop.

FX implications

Not much new here from Harker for the FX space to act upon, however, Fed officials left rates unchanged at last month's policy meeting, with the target range for the central bank's benchmark rate at 1.50% to 1.75%. Policymakers said rates are well-positioned following three rate reductions last year and signalled rates are likely to stay on hold unless there is a substantial change to the economic outlook. However, in the presser, Fed's Chairman, Jerome Powell, expressed his concerns for inflation being persistently below target. This week, we will hear from Powell in his Semi-Annual Testimony. 

"We expect a dovish tone, similar to in the January 29 press briefing. The policy is on hold for now, but with an easing bias, reflecting a new approach to inflation as well as lingering growth concerns. Officials appear to have adopted some form of average inflation targeting, even as the review continues. The Shelton and Waller nomination hearings will likely be dovish as well," analysts at TD Securities explained.