The Federal Reserve should leave the federal funds rate at its current level as the full effects of higher rates will take time to materialize, Federal Reserve Bank of Philadelphia President Patrick Harker said today. In a speech at a banking conference in Philadelphia, Harker said that economic and financial conditions are evolving “a tad better” than he expected since the Federal Open Market Committee last raised rates in July, when it set the target range at 5.25% to 5.5%.
“Disinflation is underway, labor markets are coming into better balance and economic activity continues to be resilient,” Harker said. He added that the workings of the economy cannot be rushed, “and it will take some time for the full impact of the higher rates to be fully absorbed. What I have heard this summer is an appeal to give you and your customers the thing you wanted most: time to catch your breath.”
Harker also acknowledged that the rising rates have come at the expense of the mortgage market, saying that one contact recently told him, “There are no first-time homebuyers.” Still, he noted that one of the pillars of Fed policy is holding inflation at 2%. “And while I am sensitive to the impacts higher policy rates have had, that goal remains job one,” he said. The FOMC next meets Oct. 31-Nov. 1.