Despite ominous indicators hanging over the economy and higher interest rates, Philadelphia Federal Reserve President Patrick Harker said Tuesday he doesn’t think the US is headed for a recession.
That view, expressed in a CNBC interview, in the face of a looming reversal of 10- and 2-year Treasury yields and market expectations that the Fed is about to begin a cycle of significant rate hikes aimed at curbing inflation.
Harker said he thinks the current state of the economy is strong enough to counter both tighter monetary policy and the bond market fears what that will mean for growth.
“What I’m looking for is a safe landing,” he told CNBC’s Sara Eisen in one.Power lunch“interview.” It can be bumpy on the way. Going up is bumpy, going down is bumpy. We’ve all been on those planes. We land safely, but it will be a little nervous. I do not want that. So that’s why we are cautious and careful about how we implement the policy. “
The comments have arrived with the curve to the plane between the 10-year benchmark and the 2-year benchmark. The curve has inverted, with 2-year yields higher than 10-years, during most of the recent US recessions, though it’s not guaranteed.
Harker warns against relying too much on a relationship when trying to predict the future.
“The evidence is mixed,” he said. “So we need to make sure we’re looking at a lot of different data.”
Yield-curve inversions are seen as an important sign because they reflect investor concern that the Fed will tighten conditions excessively causing them to limit growth further. They also tend to limit lending from banks, who worry that future returns will be lower.
However, the unemployment rate in the US is back to almost pre-pandemic, when the unemployment rate hit a 50-year low. Consumers are still excited about cash and property values continue to rise.
But the Fed has struggled with inflation is at a 40-year highled Harker and his colleagues to embark on a rate hike cycle, in which markets are expected to rally at each of the remaining six meetings this year, with levels possibly as high as half a percentage point.
Harker said he thinks the Fed at its May meeting should raise the benchmark interest rate by just a quarter of a percentage point, or 25 basis points. However, the market is expecting a 50 basis point gain and Harker said he remains open to the idea depending on the data.
“I’m not going to take it off the table,” he said of the higher move.
Even with the prospect of much higher interest rates, he said the Fed could adjust its way through the current situation, with a focus on reducing inflation first.
“It was the first job,” he said. “However, I don’t want to overdo it and try to put the brakes on really hard and end the development.”
“I think it’s going to be a bumpy ride, and there could be some problems as we get into the undertrend growth phase,” he added. “But I think we can work this out.”