Harker says Fed has ‘probably done enough’ to curb inflation

Top Fed officials have gathered in the resort town for their annual event to assess the health of the economy. Fed Chair Jerome Powell is expected to outline the central bank’s strategy in a speech Friday that will be closely followed by Wall Street
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Harker has previously indicated he would prefer to leave a key interest rate unchanged at the Fed’s next meeting in late September. He is a voting member this year of the 12-member committee that sets rates.

The central bank has jacked up a key short-term rate to a top end of 5.5% from near zero a year and a half ago in an effort to extinguish high inflation. Higher borrowing costs typically slow inflation by depressing economic growth.

Yet the economy has kept growing steadily even as inflation has slowed to a 3% yearly rate from a 40-year peak of 9.1% in 2022, raising hopes that the Fed could achieve a rare “soft landing” — in other words, taming inflation without causing a recession.

Harker said he sees signs the economy is slowing, and he expects the unemployment rate to rise above 4% by next year from the current rate of 3.6%. He said he was not sure whether the U.S. would experience a recession.

He said his preference is to “keep rates high for a while” to bring inflation down over time.

“I am in the camp of, let the restrictive stance work for a while. That should bring inflation down,” he said.

In Fed lingo, a restrictive stance refers to a level of interest rates high enough to temper economic growth.

Harker said he could not predict when the Fed would begin to cut rates. It will all depend on how fast inflation slows toward the 2% goal, he said.

“We have to let that play out,” Harker said. “We’ve tried to predict it and predict and predict it. I need to actually see it.”