A Federal Reserve Member Is Suggesting The Fed ‘Cools Down’
A non-voting member of the Federal Reserve’s Federal Open Market Committee is suggesting that the Fed should hold firm in interest rates. Patrick Harker, the President of the Philadelphia Fed, has spiked a controversy with his recent remarks.
In what many are observing as a liberal speak up by a member of the Federal Reserve, the banker is urging his employers to think back.
Let Things Settle
Mr. Harker is of the idea that any further tampering with the interest rates is going to present a risk to the economy. In the presence of respected economists who are members of the Shadow Open Committee, Harker presented his thoughts. In his presentation, he called for a cool down to let things settle, as there were too many unknowns in the offing. He suggests that the best move is to observe what is happening in the market. According to the Philadelphia Fed president, this will allow for better decision making.
A strong economy with risks
Harker went ahead to describe the US economy as a strong economy with clear downside risks. This statement comes at a time when the manufacturing data from September showed a slowdown in manufacturing for the first time in over 35 months.
He threw in a bit of pessimism, however, suggesting that he forecasts inflation creeping in. His pessimism gets a strong validity going by the Fed’s estimation that it will range around 2%. Harker also pointed out to uncertainties about trade as a major issue.
This comes after scheduled talks between Beijing and Washington in September did not bear fruit. This lack of resolve has cast the global economy in further doubt with more rapid shifts in currency markets.
A Bold Move
Mr. Harker’s bold statement before the economists who monitor Fed activity is sending ripples across the economy. Only recently, several Central Banks around the world cut down their interest rates in response to the waging a trade war. Many people expected the Federal Reserve to do the same thing when it met for its policy meeting. However, it chose a 25 basis point reduction instead.
This move by the Federal Reserve left many investors and market observers in shock. The reason for this was that a lot of optimism had built up in them. The Federal Reserve initiated this as the second cut this year. This comes after several hikes last year. Experts did not receive the hikes positively.
Harker was also vocal about last week’s rapid shift in the overnight lending, or repo market. A 10% spike in short-term rates is not anything that the market expected. This shift did not spare the fed fund rates either. It rose five basis points above the target range the Federal Reserve set.
Harker’s opinion is that the turbulence in the markets has no real effect on the monetary policy or the overall economy. He, however, urged that the Fed consider a change of approach. His opinion is that organic expansion is the way to go in the face of uncertainty in the economy.
