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Harker says Fed should 'hold firm,' monitor uncertainty

The Federal Reserve should keep interest rates steady and evaluate how the U.S. economic outlook unfolds, Philadelphia Fed President Patrick Harker said in a speech in New York on Sept. 27.

Harker said his outlook for the economy "hasn't really changed," as he sees continued growth in the labor market, inflation trending toward 2% and consumers powering the U.S. economy despite elevated business uncertainty.

"My own view is that we should hold firm, letting things settle and watching how events play out," Harker said.

U.S. GDP should rise a bit above 2% this year, but trade uncertainty and other global developments pose "clear downside risks" to the economy, Harker said.

The Federal Open Market Committee has lowered interest rates twice this year largely due to those downside risks, though a couple of Fed officials have favored taking more aggressive action, and others have cautioned against cutting rates. Harker does not vote on the FOMC this year but will rotate into a voting spot in 2020.

The Philadelphia Fed president said trade uncertainty is dampening business investment, noting that Fed officials "hear it again and again from our contacts." But the Fed's monetary policy actions are a "relatively blunt tool with relatively limited scope," he added.

"The Federal Reserve can pull the levers available to us to create a more hospitable environment for growth, but trend economic growth is driven by fiscal policy," he said. "Monetary policy can't mitigate risk or move the growth needle in a meaningful way."