More Interest Rate Hikes Not Needed to Tame Inflation, Fed Official Says

Philadelphia Federal Reserve President Patrick Harker said Friday that he thinks the Fed no longer needs to raise interest rates in its battle to curb inflation.

“Holding rates steady will let monetary policy do its work," he said at the Delaware State Chamber of Commerce. “By doing nothing, we are still doing something. And, actually, we are doing quite a lot.”

The central bank has raised its key interest rate 11 times since March 2022 in its battle to slow the economy just enough to bring inflation down to its target rate of 2%. It now stands at a 22-year high of 5.35-5.5%.

"We did a lot, and we did it very fast," Harker said, adding that, "it will take some time for the full impact of the higher rates to be felt."

Inflation still remains well-above the Fed's target of 2%. On Thursday, the U.S. Bureau of Labor Statistics' latest reading on the consumer price index came in at 3.7% for the 12 months through September, a tick higher than economists had expected.

Harker is a member of the Fed's rate-setting Federal Open Market Committee and his words are influential. Other FOMC members also have hinted that the Fed may be finished raising rates, including Mary Daly, president of the San Francisco Federal Reserve Bank.

But FOMC member Michelle Bowman recently said she thought another rate hike may be needed, as did FOMC member Neel Kashkari.

Minutes from the FOMC's Sept. 19-20 meeting also showed members were leaving open the possibility of future rate hikes, though their views may have shifted given recent developments such as the war in Israel and a surge in Treasure yields.

The Fed would like to slow the economy just enough to tame inflation but not enough to tip it into a recession. Despite its efforts, the economy remains relatively strong, growing at more than 2% in the first half of the year and generating a healthy number of jobs.

Harker said the Fed must be patient and "data-dependent," an oft-cited description of the central bank's approach. He acknowledged that a surge in inflation could change his outlook.

“We will not tolerate a re-acceleration in prices,” he said, adding that he "would have no hesitancy to support further rate increases."

Harker gave no hint as to when the Fed would begin cutting interest rates, indicating they may remain high for the foreseeable future.

“I do subscribe to the new moniker, ‘higher for longer," he said. "I didn’t coin it, but my expectation is that rates will need to stay high for a while."

The Fed's FOMC next meets Oct. 31-Nov. 1 to decide on rates. Fed Funds futures traders are betting there's less than a 10% chance of another rate hike, according to the CME FedWatch Tool.