By Michael S. Derby
(Reuters) -In his final speech as a central banker, Philadelphia Federal Reserve President Patrick Harker said on Thursday the economic outlook is too unsettled right now to say what’s next for monetary policy.
“America’s economy remains resilient,” Harker said in the text of a speech prepared for delivery before a gathering at his regional Fed bank. “I do not see any dangerous cracks in the foundation. But there are stressors on this foundation.”
Harker, who has held office since 2015 and is scheduled to retire at the end of this month, said big changes in policy in Washington make it very hard to know what’s next. “We do not yet have a clear picture of the ultimate impact on inflation and employment of the changing economic policies and priorities in Washington,” he said.
With all the uncertainty in play, Harker said “we have to wait and see” how the economy performs before a decision can be made on changing monetary policy. “The data I am receiving – both hard data and soft data – could allow me to present multiple outlooks, and “only time can provide the necessary clarity,” he noted.
The Fed is expected to hold its benchmark interest rate steady in the 4.25%-4.50% range at its next policy meeting on June 17-18. Many economists as well as Fed officials believe inflation and unemployment are likely to rise and growth to slow due to President Donald Trump’s import tax agenda. Most Fed officials have nodded towards the uncertainty and declined to provide much guidance on interest rate policy.
Harker noted the outlook could put the Fed in a difficult spot where it has to decide what side of its job and inflation mandates it will give primacy to. “It is entirely possible that the (Federal Open Market) Committee will be facing both upward pressures on prices and rising unemployment,” he said.
Harker also noted that the slow retreat in inflation pressures means that even absent the trade tumult, “that in itself has been reason enough to hold steady, be deliberate in our approach, and allow monetary policy to continue to work.”
He also said that it’s critical to defend and promote Fed independence. “It is absolutely critical that decisions on monetary policy be free of external noises and influences,” Harker said.
(Reporting by Michael S. Derby; Editing by Paul Simao)
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