NEWS

Patrick Harker, President of the Federal Reserve Bank of Philadelphia, expressed optimism regarding the U.S. economy on Monday, reaffirming that there is no reason to alter the current interest rate policy while the central bank continues its efforts to reduce inflation.

In a prepared speech he is set to deliver to a group in Nassau, Bahamas, Harker stated: “Current data reflects a strong U.S. economy.” He added that while inflation remains elevated, it appears to be on the path to gradual decline, driven by resilient growth and a balanced labor market. He further emphasized that these factors justify keeping interest rates steady.

Harker repeated his positive outlook on the U.S. economy, reinforcing the Federal Reserve’s position that there is no immediate need for a shift in its monetary policy.

Economic Policies and Inflation Pressures

Many economists believe that President Trump’s policy mix of heavy import tariffs and workforce deportation could exert additional inflationary pressures.

In this context, Harker remarked: "Regarding inflation, we simply don’t yet know if we will see any effects from the new economic policies and priorities, whether domestic or of international nature."

Inflation Data and Fed Minutes

Recent inflation data for January, released last week, revealed that prices rose more than Wall Street had anticipated. However, economists found positive signs in the details, suggesting favorable conditions for both markets and the Federal Reserve.

Key components of the Consumer Price Index (CPI) and Producer Price Index (PPI) influence the Personal Consumption Expenditures (PCE) index, the Fed’s preferred measure of inflation. When evaluating these components, it appears that the pace of price increases slowed in January.

Economists now project that the core inflation rate in the PCE index, which excludes volatile food and energy categories, will be around 2.6% in January, down from 2.8% in December.

As a result, markets continue to expect one or two interest rate cuts by the Federal Reserve in 2025, with little change from previous forecasts, according to Bloomberg data. Importantly, many economists see the Fed as being closer to cutting interest rates rather than raising them.

Investors Await Fed’s January Meeting Minutes

Investors are eagerly awaiting the release of the Fed’s meeting minutes for January, scheduled for Wednesday at 10:00 PM Riyadh time, looking for clues on the central bank’s future stance on interest rates.