At the Federal Reserve’s annual conference in Jackson Hole, Wyoming, Philadelphia Fed President Patrick Harker expressed strong support for lowering interest rates at the next meeting in September.
This stance was reinforced by recent Federal Reserve minutes, which suggested a potential drop in short-term rates. Officials are more confident about inflation trends and are eager to forestall any potential decline in employment.
“We should start the process of cutting rates in September,” Harker said in an interview. He stressed the importance of the Federal Reserve making these adjustments methodically and communicating them clearly in advance.
Financial markets are fully expecting a decrease of at least 25 basis points, with a 25% chance of a 50 basis point reduction. Harker commented: “The decision is still up in the air for me. I’m waiting for more data in the coming weeks to help me make a decision.”
The Federal Reserve has held its overnight benchmark rate steady at 5.25%-5.5% since July 2023, in an ongoing effort to manage inflation. After the July meeting, market fluctuations reflected some uncertainty about when rate cuts would begin.
There has been a shift among policymakers, however, toward a more accommodative monetary stance. “Our decisions are made independently of political pressures,” Harker said, alluding to the upcoming presidential election. “Our role is to analyze the data and respond appropriately. It looks like it’s time to start cutting rates.”
While Harker will not have a vote on this year’s Federal Open Market Committee decisions, he still plays a significant role in the discussions. Kansas City Fed President Jeffrey Schmid, another nonvoter this year, has also signaled a preference for an early rate cut.
Schmid highlighted the rising unemployment rate as a contributing factor to inflation concerns, driven by wage pressures and evolving inflation expectations. “With the unemployment rate now in the low 4s, down from 3.5 percent, we need to look more closely,” he said.
Schmid also noted that banks have managed the high-rate environment well, suggesting that current monetary policy is not overly restrictive.
Harker will be eligible to vote again in 2026, while Schmid will be eligible to vote next year.
