On a significant day in the Bahamas, Harker took to the stage to address the current monetary policy stance of the Federal Reserve. After three rate cuts last year, many in the financial markets have been rife with speculation regarding the Fed's forthcoming actions. Harker emphasized that the current monetary policy remains “restrictive.” Despite implementing cuts, the constraints on the economy endure, suggesting that the Fed is still treading cautiously in balancing the dichotomy of economic stimulation and inflation control.

Harker provided a thorough analysis of the overall condition of the U.S. economy. He noted that economic growth and production continue along a robust path. Examination of macroeconomic data reveals a stable and positive GDP growth rate, with production activities across various sectors progressing steadily. Both manufacturing output and the expansion of services are demonstrating significant vitality and resilience. Concurrently, the labor market shows balance, with unemployment holding steady at reasonable levels. Supply and demand for labor appear well-matched, avoiding mass unemployment or labor shortages, thus laying down a solid human resource foundation for stable economic operation. Based on these positive factors, Harker firmly believes, “These factors are sufficient to support our decision to keep policy rates unchanged.” While he did not commit to a specific duration for maintaining rates, his optimistic tone was unmistakable as he expressed confidence that inflation will continue its downward trajectory, eventually allowing for a gradual reduction of policy rates over the long term.

Reflecting on the decision made in January, the Federal Reserve officials opted to hold interest rates steady. This decision was not made in isolation, as it was based on the foundational forecast of a one percentage point reduction in benchmark rates by the end of 2024. In 2024, the Federal Reserve experienced a pivotal shift in monetary policy. After 11 consecutive rate hikes over more than two years, they commenced substantial cuts in September, thus entering a new policy cycle. Following this, there were further cuts of 25 basis points in both November and December, leading to a gradual decline in the benchmark rate. The choice to hold rates steady in January signals the Fed's entrance into an observation phase regarding policy adjustments.

Last week, Fed Chair Powell emphasized during his testimony to Congress that after last year’s rate cuts, the Fed does not feel pressured to rush into further rate reductions. Policymakers are now fixating on inflation data, hoping to witness a noticeable decline in inflation rates. Although there is a trend of easing inflation in the United States, some stickiness remains. From the price data, the Consumer Price Index (CPI) for November saw a year-on-year increase of 2.7%, up 0.3 percentage points month-on-month; the core CPI remained unchanged at a 3.3% year-on-year increase. The personal consumption expenditures (PCE) growth for October recorded a year-on-year rise of 2.8%, an increase of 0.1% compared to September’s preliminary figures, while the core PCE index reached 2.8% over three months, reflecting stagnation in the overall inflation decline. Furthermore, policymakers expressed the need for additional time to thoroughly assess the economic policies that the new administration is poised to implement. After all, the economic policies by the new administration may touch on various fronts, including fiscal spending, tax adjustments, and industry support, and their implementation could have profound implications for the macro economy, consequently influencing the Federal Reserve's future monetary policy direction.

Harker exhibited particular concern for the CPI inflation data from January, expressing a cautious stance. The CPI figures for that month were notable, marking the largest increase since August 2023, with costs for essential household expenditures like food, fuel, and housing rising across the board. The uptick in food prices may correlate with agricultural supply issues, climate changes, and global trade dynamics; fuel prices are susceptible to fluctuations in global oil markets and geopolitical developments; while heightened housing costs might stem from supply-demand mismatches in the real estate market and construction material pricing. The changes in this data have stirred nerves in the market, igniting widespread concern regarding a potential inflation resurgence. However, Harker offered his unique insight: “Over the past decade, the January CPI inflation data has exceeded expectations nine times. My conjecture is that seasonally adjusted inflation does not accurately capture the shifts in the U.S. economy. We need to interpret the real trends out of monthly fluctuations.” He insisted that one should not hastily judge the inflation situation solely based on a single month’s CPI data, but rather conduct an in-depth analysis of the economic logic underlying the numbers, seeking to excavate the true trajectory of inflation from long-term monthly data variations.

Harker explicitly stated his full support for the Federal Reserve's decision to maintain interest rates unchanged last month. Based on an in-depth examination and forecasting of the economic landscape, he believes that if the economy continues to proceed along its expected path, the current levels of interest rates are adequate to successfully bring inflation down to the Fed's target of 2% over the next two years. This perspective not only reflects his confidence in the self-regulating capacity of the U.S. economy but also demonstrates his recognition of the effectiveness of the Fed's existing monetary policy. In his view, maintaining stable interest rates at this stage is a prudent and sagacious decision, one that can avert the inflationary risks that may arise from overly aggressive rate cuts while also providing a conducive monetary environment for a smooth transition and sustainable development of the economy.