(Washington) No rate cut in sight at the American central bank (Fed), one of its officials warned on Wednesday, who added that they will probably have to remain high for longer than expected, while inflation has certainly slowed down, but remains too high.
“A cut in the policy rate is not likely to happen in the near term. I take the position that rates are going to have to stay high for longer,” said Patrick Harker, president of the Philadelphia Fed, during a speech at the Northwestern University Transportation Center in Evanston, Illinois.
On November 1, the Fed kept rates in the 5.25% to 5.50% range they have been in since July, their highest level in 22 years.
Patrick Harker noted the “lags” between monetary policy decisions and their effects on the real economy, saying that “keeping the rate stable will give time to catch up.”
The Fed’s decisions in the coming months could go “in one direction or the other, depending on what the data tells us”, underlined this official, who in 2023 will have rotating voting rights within the monetary policy committee (FOMC), the decision-making body.
“We are experiencing slow but steady disinflation. Interest rates remain in restrictive territory (and slow down economic activity, Editor’s note) and, as long as they are, they will continue to slow inflation,” he added.
Inflation stood at 3.4% annualized in September, according to the PCE index favored by the Fed.
And Patrick Harker was optimistic about the trajectory of the coming months, with “controlling inflation” and “protecting our economic foundations”.
It anticipates inflation below 3.0% year-on-year in 2024, before a return to the 2.0% target.
And while he expects “a slowdown in GDP growth over the coming quarters,” he does not anticipate a “recession.”
Mr. Harker nevertheless warned of the dangers facing the American economy.
A paralysis of the federal administration, if elected representatives of Congress cannot agree on the budget by November 17, could “reduce fourth quarter GDP by a percentage point,” according to him.
“And of course, there are international issues that can impact our own economy,” he noted.