Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data.

“I believe that we are at the point where we can hold rates where they are,” Harker said in a virtual event with the Delaware State Chamber of Commerce. “By doing nothing, we are still doing something. And, actually, we are doing quite a lot.”

Harker said economic and financial conditions are evolving a bit better than he had expected, with prices cooling and labor-market tightness unwinding.

“I am sure policy rates are restrictive, and as long they remain so, we will steadily press down on inflation and bring markets into a better balance,” Harker said.

The Fed has been carefully calibrating policy this year after sharply increasing interest rates in 2022 and policymakers have said they’ll need to keep rates high for a long time to cool inflation.

Officials held rates at their meeting last month while signaling that they’d likely deliver another increase this year. Now, with two more meetings to go, some policymakers have said that a run-up in bond yields since the September decision may obviate the need for further tightening.

At the same time, an unexpected increase in the September consumer price index may renew pressure on Fed officials, who are determined to fully bring inflation down to their 2% goal. Harker noted the uptick in the CPI but said he’s focused on how data performs over a few months.

“First, we will not tolerate a reacceleration in prices,” Harker said. “But second, I do not want to overreact to the normal month-to-month variability of prices.”

He said he’s prepared to adjust policy “either way” should the economic picture change, noting several risks including labor strikes, higher oil prices, the possibility of a government shutdown and the resumption of student-loan payments.

In August, at the Fed’s annual policy symposium in Jackson Hole, Wyoming, Harker signaled support for keeping rates where they were and assessing later whether more tightening would be needed.

The Philadelphia Fed chief said the significant increase in debt-service costs is putting “real pressure” on the US budget deficit, adding that analysis by researchers at the Wharton School at the University of Pennsylvania shows that the point where this becomes a problem is “not that far off.”

“We need to deal with it,” he said. 

This article was provided by Bloomberg News.