Philadelphia Fed President Harker: Current policy remains restrictive, expects interest rates to "decline over the long term"
In 2026, the Philadelphia Federal Reserve President Harker optimistically expects that the Federal Reserve's policy interest rate can "decline in the long term." He believes that the current monetary policy is in a good position and remains restrictive even after three rate cuts last year. Harker supports the decision to maintain interest rates unchanged last month and believes that the current interest rate level is sufficient to bring inflation down to the Federal Reserve's 2% target within the next two years
In 2026, the Philadelphia Federal Reserve President Harker stated that the current monetary policy is in a good position as Federal Reserve officials await further declines in inflation.
On Monday, Harker mentioned at an event in the Bahamas that after three rate cuts last year, monetary policy "remains restrictive." He expects interest rates to continue to decline in the long term while emphasizing that economic growth and production remain robust, and the labor market is balanced. Harker stated:
“These factors are sufficient to support our decision to keep the policy rate unchanged. While I won't commit to a specific timeline, I remain optimistic that inflation will continue to trend downward, and the policy rate will be able to decline in the long term.”
In January of this year, Federal Reserve officials kept interest rates unchanged after lowering the benchmark rate by a full percentage point by the end of 2024. Federal Reserve Chairman Powell testified before Congress last week that after last year's rate cuts, the Federal Reserve does not need to rush into further cuts. Policymakers want to see greater progress on inflation and indicated that more time is needed to assess President Trump's economic policies.
Harker expressed caution regarding the January CPI inflation data, which showed the largest increase since August 2023, with widespread rises in household spending costs such as food, fuel, and housing:
“In the past decade, the January CPI inflation data has exceeded expectations 9 times. My speculation is that seasonally adjusted inflation does not capture the changes in the U.S. economic situation, and we need to discern the real trend from monthly fluctuations.”
Harker stated that he fully supports the decision to keep rates unchanged last month. He believes that if the economy develops as expected, the current interest rate level is sufficient to bring inflation down to the Federal Reserve's 2% target within the next two years.