Harker says Fed should ‘hold firm’ on interest rates

Philadelphia Fed President Patrick Harker thinks interest rates should hold steady as events unfold in what he called a  strong economy that also has “clear downside risks.”

“My own view is that we should hold firm, letting things settle and watching how events play out,” he said in prepared remarks Friday to the Shadow Open Market Committee of economists who monitor Fed activity.

Harker, a nonvoting member of the Federal Open Market Committee, spoke nine days after his fellow central bankers voted to cut the Fed’s benchmark interest rate by a quarter, the second reduction this year.

He said he views the economy as strong with inflation on its way to the Fed’s 2% goal. Yet he also noted potential problems with “trade and international developments and the uncertainty they breed.”

Along with his views on rates, Harker also weighed in on last week’s tumult in the overnight lending, or repo, market that saw short-term rates spike to 10% and the fed funds rate climb 5 basis points above its target range. 

While the events shook markets, “they neither reflect — nor direct — the stance of monetary policy. Nor do they have implications for the wider economy,” he said.

However, he added that the Fed should continue to look at its approach to where it is holding its balance sheet and said “organic” expansion should be considered.