MNI: Fed Must Wait And See On Policy Amid Uncertainty - Harker

Federal Reserve officials must wait for more clarity on the effect of tariff policies before making any decisions on interest rates, Philadelphia Fed President Patrick Harker said Thursday in his last public speech as an FOMC member. 

That's because trade frictions pose risks to both the price stability and full employment sides of the central bank's mandate, he said, and thus making the wrong move could be especially costly. 

"Whenever price stability and maximum employment are at odds, a mistake could send policy the wrong way. To go the right way, we need to know more about the magnitude and persistence of the effects on inflation and employment. Which, effectively, means we have to wait and see," Harker said. (See MNI POLICY: Fed Cut Impetus Fades Alongside Recession Fears)

He said slower progress on inflation even before tariffs was "reason enough to hold steady."

The possibility that the Fed will face upward pressure on prices at the same time as economic activity and employment slow will pose an unusual challenge for policymakers. 

"Once there is a trade-off between our mandates, the direction of travel is in question," he said. 

While hard data have not shown major cause for worry, Harker flagged a spike in consumer inflation expectations as something he is watching closely. "I approach this with great deliberation, as we have learned that we cannot easily dismiss consumer 'vibes,'" he said.