Philly Fed President Harker doesn’t see recession, warns that smaller interest rate hikes will continue
January 19, 2023
Philadelphia Federal Reserve President Patrick Harker offered a modestly upbeat outlook for the economy, while warning that higher interest rates won’t go away anytime soon.
Harker spoke Wednesday at the Economic Forecast sponsored by the University of Delaware Lerner Business and Economics & The Lyons Companies. The setting was the office tower University of STAR campus on the south edge of Newark. Harker helped engineer the purchase of the former Chrysler plant.
Harker sits on the Federal Reserve’s Open Market Committee, which sets interest rates. All Federal Reserve governors participate in meetings that lead to interest rate decisions.
Emphasizing that his views don’t reflect those of the Federal Reserve itself, the former University of Delaware president is not forecasting a recession and sees signs of the highest rate of inflation in 40 years. Harker said the Federal Reserve will continue to raise interest rates, but at a slower rate as the rate of inflation comes down. He noted a slowdown in areas such as housing. At the same time, he emphasized that interest rates will not come down in the short term.
According to Harker, one potential trouble spot is commercial real estate, due to the trend toward more people working at home rather than going to the office five days a week.
Harker sees a core inflation rate of 3.5 percent, down from last year’s peak, but still below the Fed’s goal of 2 percent. He concluded his remarks by emphasizing that the Fed will continue to attack inflation.
In a panel discussion, Harker said the Federal Reserve will be cautious and look at the data, comparing the situation to being in an unlit room and trying to find the light switch. The Fed will look for the switch, rather than bumping into the wall, Harker said.
Other panelists were the moderator, Nick Timiraos, chief economics correspondent for the Wall Street journal and Dan Mahaffee, of the Center for the Study of the Presidency and Congress and Michael Farr.
Mahaffee said the one unknown for the economy is a technology cold war with China with Congress and the Biden Administration both supporting measures to deal with issues that include lessening the dependence on China in electronic components and related technology. Mahaffee has studied in China and speaks Mandarin.
Farr, an investment manager and long-time participant at the Lyons-Lerner Economic Forecast, disagreed with Harker and believes that a recession is more than a remote possibility.
At the same time, he said the economy will come out on the other side and pointed to the nation’s educated workforce and other factors.
Farr and Harker conceded that those with low and moderate-income people are hurt the most of inflation and a recession.
To no one’s surprise, panelists spent time discussing the aftermath of the Covid-19 pandemic and China, the world’s No. 1 or No. 2 economy struggling with the virus, despite its lockdown policy that has been eased somewhat.
Ukraine was also a topic, with Harker and other panelists noting that there was no way the impact of Russia’s invasion could have been forecast.