Fed's Harker Breaks Ranks With Powell, Rejects Further Rate Increases, Signaling Board Dissent

Following Federal Reserve Chair Jerome Powell’s opening remarks at the Jackson Hole Symposium, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, offered his perspective.

Harker’s message took a more dovish turn compared to the board chairman’s stance, which had left room for potential rate increases if deemed necessary.

Interviewed on Bloomberg TV, the Philadelphia Fed president raised a cautious flag, asserting the Fed is already maintaining a “restrictive stance” and advocated against intensifying the approach with additional rate hikes.

“I’m in the camp of keeping the pressure on, not increasing it,” Harker stated, reflecting his inclination to keep interest rates stable.

“Others may disagree with that,” Harked said, highlighting the presence of diverging views within the Fed board.

He suggested allowing interest rates some leeway and permitting the financial system to adapt to the new environment.

Nevertheless, Harker remained vigilant, cautioning that a pause in the inflation’s decline might necessitate further rate hikes.

Harker observed that the economy is feeling the effects of elevated interest rates, noting the “labor market is definitely easing up” and expressing some worries about the latest retail figures.

His perspective was rooted in qualitative insights gleaned from interactions, as he emphasized the lessons learned during the COVID-19 pandemic, where on-the-ground observations sometimes provide deeper insights on the inflation front than raw data alone.

In terms of the rate reduction trajectory, Harker dismissed the possibility until at least 2024, citing the extended timeline required to reach the inflation target. “Data will dictate what the Fed will do next year,” the policymaker said.

Fed Futures Show A Further Rate Hike By November Is Now More Likely Than Not

The recent statements from the Fed have brought a distinct shift in the anticipated likelihood of future interest rate hikes, as indicated by the Fed futures market.

Although the probabilities of a hike in September remain relatively contained, hovering around 20%, the odds of a rate increase by November have now swung towards a higher possibility. The market’s implied probability of a rate hike in September has surged to 57%, according to CME Group.

The U.S. dollar index, monitored through the Invesco DB USD Index Bullish Fund ETF UUP, has gained 0.3% on Friday, putting it on track to secure its sixth consecutive week of growth.

The SPDR S&P 500 ETF Trust SPY is facing a volatile session, but still managed to edge 0.3% higher.

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Photo: Courtesy University of Delaware via Flickr Creative Commons