Philadelphia Federal Reserve Bank President Patrick Harker said he expects the central bank to begin easing monetary policy by cutting interest rates by 25 basis points, and that he would be open to a larger cut if the labor market suddenly weakens.
“Starting at 25 makes a lot of sense to me,” Harker told Yahoo Finance in an interview Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
He said he would consider a bigger rate cut if it became clear the labor market was in crisis, but added: “That’s not in our expectations at this point.”
Patrick Harker, president of the Federal Reserve Bank of Philadelphia. (Photo by John Lamparski/Getty Images) (John Lamparski via Getty Images)
The Fed president’s new comments came just hours after Fed Chairman Powell said in a speech at Jackson Hole that “it’s time to adjust policy,” signaling a clear sign of interest rate cuts in the market.
Powell’s speech came just three weeks after the Fed’s Sept. 17-18 meeting, where it is expected to announce its first interest rate cut since 2020.
But Powell remained silent on whether the first cut would be 25 or 50 basis points, or whether September would actually be the starting point, saying “the timing and pace of rate cuts will depend on upcoming data, the evolving outlook, and the balance of risks.”
Read more: Fed forecast for 2024: Experts discuss the possibility of a rate cut
Federal Reserve Chairman Jerome Powell, left, talks with Bank of Canada Governor Tiff Macklem outside the Jackson Hole Economic Symposium on Friday. (Associated Press/Amber Basler) (Associated Press)
But market expectations of a bigger move in September grew on Friday morning, with the market now pricing in a 34.5% chance that the Fed will cut rates by 50 basis points by the end of the September meeting, up from about 24% the previous day, according to CME’s FedWatch tool.
Former Cleveland Fed President Loretta Mester, who stepped down from the central bank’s interest rate-setting committee less than two months ago, said in an interview with Yahoo Finance that she doesn’t want to start at 50 basis points because “it would actually suggest that the Fed is outdated, and I don’t think the Fed is.”
“I think 25 would be a reasonable benchmark,” she added.
Former Cleveland Federal Reserve Bank President Loretta Mester. Reuters/Lucas Jackson (Reuters/Reuters)
Meanwhile, former Fed Vice Chairman Alan Blinder would have liked the Fed to cut rates at its last meeting in July.
“I think they’re a little bit behind,” he told Yahoo Finance, but added, “not by much.”
Harker said whether the cut would be 25 or 50 basis points would depend on the data, and that “the process is more important” than the actual numbers.
“The right direction is clearly downwards,” and “I don’t think we’re becoming obsolete.”
Mester said the Fed could deliver three 25-basis-point rate cuts in its three remaining meetings in 2024.
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He said the real challenge for the central bank was to bring inflation down to its 2 percent target while maintaining the health of the labor market.
He added that achieving such a soft landing is “quite possible.”
Mr. Harker agreed.
“Right now, things are looking pretty good,” he said.
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