With the economy remaining strong, Federal Reserve Bank of Philadelphia President Patrick Harker said interest rates should be held for now.
“The U.S. economy continues to be strong,” while “we still have a very strong labor market,” he said in an interview published in the Wall Street Journal Tuesday. So despite trade policy issues increasing the risk to the outlook, Harker “doesn’t see a compelling reason to lower interest rates,” the paper said.
Harker, who doesn’t have a vote on the Federal Open Market Committee this year, said if “the economy was weakening substantially, which at this point, I do not see,” it would warrant a rate cut. “There’s no immediate need to move rates in either direction at this point in my view.”
It would be “prudent” to keep the federal funds rate at 2.25% to 2.5% “and see how the economy evolves,” he said.
While the Fed’s failure to move inflation up to 2% is an issue, but “it’s one that I don’t see as an imminent crisis,” Harker said, “and I think we can give it some time to move back up to 2%.”
The markets await two days of testimony from Federal Reserve Board Chair Jerome Powell, who presents the semiannual monetary policy report to Congress and will answer questions from the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday.
While there is time before the Fed’s July 30-31 meeting, and things can change, the stronger-than-forecast June employment report “alleviates mounting pressure on the Fed to act sooner than later,” Stifel Chief Economist Lindsey M. Piegza wrote in a note. But "a further deterioration in the data over the next three weeks could change the Fed’s opinion rapidly, especially as a growing number of officials have already indicated skepticism of the underlying strength of the economy.”
In the latest Summary of Economic Projections “the majority of officials still see rates unchanged through the end of the year,” so “the market could be poised for a severe disappointment if the Committee’s assessment of current conditions and the need for the cycle’s first rate cut aren’t more aligned come the July 31st FOMC meeting.”
Separately, President Trump’s top economic adviser Larry Kudlow told CNBC the administration is not trying to oust Federal Reserve Chair Jerome Powell.
Small business optimism
Small business optimism remained historically high, but the NFIB Small Business Optimism Index fell to 103.3 in June from 105.0 in May, while its uncertainty index jumped seven points, the National Federation of Independent Business reported Tuesday.
“As expectations for sales gains and the general business environment faded, uncertainty levels increased,” said NFIB Chief Economist William Dunkelberg. “Still, job openings and plans to create jobs remain historically very strong, and while it’s not as ‘hot’ as May, Main Street is still running strong.”
Consumer credit
Consumer credit climbed debt climbed $17.1 billion in May, led by a gain in revolving credit, the Federal Reserve reported Monday.
Economists polled by IFR Markets expected a $17.0 billion rise in the month.
Jobs
Job openings fell 49,000 to a seasonally adjusted 7.3 million in May, the Labor Department reported Tuesday, while hiring slid 266,000 to 5.7 million.
