Patrick Harker, chairman of the Federal Reserve Bank of Philadelphia, said Tuesday that the central bank is trying to stifle high inflation without derailing an otherwise strong economy.
In a recorded interview with The Hill’s Future of Jobs Summit, Harker said the Fed needs to strike a careful balance between stabilizing rapid price growth and pushing the economy into slowdown.
“The economy is strong,” Harker said, citing nearly 1.7 million jobs in 2022 and a record economic growth last year.
“We are seeing a lot of good signs,” he continued. “What we do not want to do is destroy the good things by being very aggressive about inflation. “We have to take action, but at the same time we have to be careful.”
Harker’s comments come amid growing concern among some economists and investors about the Fed’s ability to halt inflation without causing a recession.
Consumer prices rose 8.5 percent in the previous 12 months and 1.2 percent in March alone, according to the Consumer Price Index (CPI) released on Tuesday by the Ministry of Labor.
While the war in Ukraine led much of March growth through higher food and fuel prices, inflation rose widely across the economy and in sectors with little direct exposure to supply chain issues.
Harker said he was “very concerned” about a sharp rise in gas prices, which “disproportionately affects low- and middle-income households”.
“To the extent that we can do something about it at the Fed, that is, start reducing inflation. “We have to do it and take action and I strongly support the action,” he said.
The Fed aims to keep prices stable and the labor market strong by shifting its key interest rate range, which banks use to determine borrowing costs for mortgages, car loans, credit cards and other products. Rising interest rates are meant to slow the economy when inflation is on the rise, while lowering interest rates is supposed to stimulate the economy in times of stress.
The Fed raised its key interest rate range by 0.25 percentage points in March, almost two years after it cut its borrowing costs to zero at the start of the pandemic. The Fed is expected to raise interest rates at least six more times this year, but could accelerate that rate by raising it further in the coming months.
The Fed’s next monetary policy meeting is in May, and the bank is expected to raise interest rates by 0.25 to 0.5 percentage points. However, some economists and policymakers fear that the Fed will need to raise interest rates so aggressively to tame inflation, as higher borrowing costs could slow the recession.
Fed Chairman Jerome Powell and other officials have acknowledged that the Fed has probably waited a long time to raise interest rates, but believe the economy is strong enough to withstand higher borrowing costs. Along with the rapid growth of jobs, the US economy had about two job openings for every jobseeker, rising consumer spending and steady wage growth in the face of high inflation.
The Fed was reluctant to raise interest rates and slow the economy with thousands of Americans still returning to the workforce, but Powell has since called rising inflation the biggest threat to further job gains.
Harker expressed confidence that future Fed interest rate hikes and plans to cut its bonds would help reduce inflation to the bank’s annual target of 2% by next year.
Even so, he said, the Fed has little power over major structural issues that keep inflation high and some workers on the sidelines. Harker cited COVID-19 disruptions in China, the war in Ukraine and recruitment problems in key service sectors as threats to further inflation beyond Fed control.
“It’s harder to deal with. “We have to be a soldier in that, and we will do it,” Harker said.
Harker also urged employers to invest in developing the skills of the workforce in job vacancies, particularly in the service sector. While labor force participation has improved in recent months, the US economy still lacks thousands of pre-pandemic workers.
Harker said companies should focus on the skills that a potential employee brings to the table rather than their experiences and try to attract employees in creative ways. He cited a resort in the Pocono Mountains, in the Philly Fed’s area, that began building affordable housing to attract workers who could not afford to move to the area.
“From one field to another, you can just see the lack and how important it is for us to really focus on bringing people to the job market with the skills that will make them successful,” he said.