June 21, 2016
This is the sixth in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.
Unlike Esther George, Loretta Mester, Eric Rosengren, James Bullard, and William Dudley — first five members of the FOMC to be profiled by CEPR — Patrick Harker does not have an extensive background at the Federal Reserve. Having been officially appointed to head the Philadelphia Federal Reserve on July 1, 2015, Harker has been in office less than a year.[1] Moreover, as the President of the Philadelphia Fed, Harker will not serve as a voting member of the FOMC for the first time until 2017.[2] (The head of the Philadelphia Fed is given a vote once every three years.[2]) This means that Harker has no voting record and has only a short history of public statements on monetary policy.
However, during his brief time in office, Harker has generally proven to be one of the Fed’s more hawkish members. In December 2015, Harker made his first public comments on Fed policy in an address at the Philadelphia Fed Policy Forum. He stated that he would like to raise rates in the near future and gave a host of reasons for favoring monetary tightening.[3] In the speech, he cited economic uncertainty, the credibility of the Fed, and inflation as his three primary concerns:
“I would like to see rates raised sooner rather than later. With an early start, we can better ensure that monetary accommodation is removed gradually and that inflation returns to the Fed’s 2 percent target smoothly. My fear is that the Federal Reserve risks losing its credibility and only adds uncertainty to the economic landscape the longer the Committee waits to begin normalizing policy.
“Therefore, raising rates this year will, in my view, serve to reduce monetary policy uncertainty and to keep the economy on track for sustained growth with price stability.” [4]
Harker did a semi-reversal of this position in February. Although he had been in favor of the Fed’s December rate hike, he expressed skepticism about the need for a second hike in the near future, stating: “It might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike.” [5] He went on to say that he was approaching Fed policy “cautiously” due to the risk of inflation running “consistently below-target.” [5, 6] Still, this was short of a full-on dovish policy stance: even at the time, Harker said he would like to see a rate increase during the second half of 2016.[6]
By the next month, Harker was again calling for higher interest rates. He indicated support for a rate hike as early as April and said that the Fed should hike rates more than two times by the end of the year.[7, 8] Harker also said that the FOMC should “consider every meeting live,” meaning that the Committee would at least deliberate on a rate hike at every gathering.[7] An article in The Guardian noted Harker’s support for a rate increase in the near future:
Last week, the Philadelphia Fed president, Patrick Harker, said he would support a rate increase soon.
“I think we need to get on with it,” said Harker. “This economy is really quite resilient to a lot of the headwinds — including the strong dollar — so if that continues I would be supportive of another 25 basis point rise.” [8]
In a speech in April, Harker backed off his push for short-term rate hikes.[9] In particular, Harker highlighted low inflation as a reason for not raising rates:
“These considerations make me a bit more conservative in my approach to policy, at least in the very near term…Although I cannot give you a definitive path for how policy will evolve, it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike.” [10]
Harker again differentiated between the short- and medium-term, stating that inflation would likely rebound in the coming months and that the Fed should begin to “normalize” policy with rate hikes in the second half of 2016.[9, 11]
In May, Harker reiterated his point about medium-term inflation and said that he anticipated two to three rate hikes by year’s end, stating: “Although I cannot give you a definitive path for how policy will evolve, I can easily see the possibility of two or three rate hikes over the remainder of the year.” [12,13] He worried aloud about the possibility of Fed policy becoming “overly accommodative by historical standards” and said that current monetary policy could lead to “accelerating inflation and the need for aggressive policy actions.” [12,13]Finally, he called for a rate hike in mid-June so long as the latest incoming economic data didn’t show signs of growing weakness in the economy: “If the data comes in and it’s not consistent with my view of the strength in the economy, then I would pause. But otherwise I think a June rate increase is appropriate.” [12,14] (Note that the latest economic data have been weak: the Labor Department reported on June 3 that the economy added just 38,000 jobs in May, the lowest rate of growth since September 2010.)
Harker has not been a member of the Federal Reserve for very long; in fact, he has yet to cast a single vote on monetary policy. However, even over the course of the past year, Harker has convincingly established his credentials as a hawk, constantly favoring interest rate hikes in the medium-term and usually in the short-term as well.
[1] Wimp, Marilyn. Philadelphia Fed Names Patrick T. Harker as Its Next President and CEO. March 2015. Federal Reserve Bank of Philadelphia.
[2] Board of Governors of the Federal Reserve System.Federal Open Market Committee. January 2016. Federal Reserve Board.
[3] Rosenfeld, Everett. Fed’s Harker, Bullard Voice Support for Hike. December 2015. CNBC.
[4] Harker, Patrick. The New Normal for the U.S. Economy. December 2015. The Philadelphia Fed Policy Forum.
[5] Randow, Jana. Harker Says It May be Prudent for Fed to Pause on Headwinds. February 2016. Bloomberg.
[6] Spicer, Jonathan. No Rush to Hike U.S. Rates Again Given Low Inflation: Fed’s Harker. February 2016. Reuters.
[7] Spicer, Jonathan.Fed Needs to ‘Get On With’ Rate Hikes, Harker Says. March 2016. Reuters.
[8] Kasperkevic, Jana.Fed Officials Hint at Interest Rate Hikes but Janet Yellen Urges Caution. March 2016. The Guardian.
[9] Robb, Greg. Fed’s Harker Wants to Delay Another Interest Rate Hike Until Inflation Picks Up. April 2016. MarketWatch.
[10] Randow, Jana. Fed’s Harker Urges Caution as Low Inflation Risks Credibility. April 2016. Bloomberg.
[11] DiStefano, Joseph. Philly Fed’s Harker: No More Rate Hikes Yet. April 2016. The Philadelphia Inquirer.
[12] Smialek, Jeanna. Fed’s Harker Sees Two to Three Hikes in 2016 as Prices Gain.May 2016. Bloomberg Markets.
[13] Davidson, Kate. Fed’s Harker Can ‘Easily’ See 2 to 3 More Rate Hikes This Year. May 2016. MarketWatch.
[14] Reuters. June Rate Hike Appropriate Unless Data Weakens: Fed’s Harker. May 2016. CNBC.
