What a Difference a Year Makes

BY PATRICK T. HARKER

AS HEAD OF the Federal Reserve Bank of Philadelphia for the past nearly nine years, my foremost responsibility has been to work to achieve the Fed’s dual mandate of price stability and maximum employment.

There are two ways in which I tackle this part of my job. The first is to look at the numerous economic indicators that are reported month to month. The second is to look below the surface of these numbers to understand why this “hard” data says what it says and that comes from listening directly to those closest to the numbers, the members of the communities we serve.

These voices—your voices—provide me with the invaluable “soft” data that helps not only explain what we see in the economic updates, but they also many times signal what I might expect to see down the road. For example, when we began 2023, the inflation rate stood around 6% year over year, the labor market showed no signs of loosening, and the Federal Reserve’s fight against inflation was being measured by many in terms of not whether more interest rate hikes were in the offing, but rather how many more would be needed.

By the summer, I had become an early public voice for holding the Federal Reserve’s policy interest rate steady. This position was informed as much by my conversations with business and financial leaders across the Third District who indicated that monetary policy was having its intended impact as it was my reading of the incoming economic data crunched by the economists at the Philadelphia Fed.

What I heard from contacts across the First State as the year progressed was a clear plea for time and room to breathe in the wake of the run-up in rates and continued economic uncertainties. This sentiment was echoed by contacts in both Pennsylvania and New Jersey, and their reasoning quickly became evident to me as I studied the numbers. I recognized that you were asked to absorb quite a lot in a very short period of time.

Moreover, what you were experiencing in real time began to be borne out in the hard data, and I staked my position accordingly.

Now, as the curtain rises on 2024, inflation is roughly half of what it was at this time last year, and my expectation remains that inflation will continue to ebb as we head—slowly yet surely—toward our 2% annual target. Along with this, labor market tightness continues to ease, GDP growth continues to exceed expectations, and last year’s fears of a looming recession have dissipated.

It appears very likely that the soft landing we hoped to achieve is, in fact, not only possible but doable. This isn’t just my national perspective. It is one that can also describe where I see Delaware’s economy as it enters this new year.

It appears very likely that the soft landing we hoped to achieve is, in fact, not only possible but doable. This isn’t just my national perspective. It is one that can also describe where I see Delaware’s economy as it enters this new year.

New business formation across Delaware continues to exceed pre-pandemic levels, especially among the high-propensity businesses most likely to grow into firms with payrolls. In that vein, payroll employment levels continued to rise and showed real gains in the third quarter of 2023. And, in the Philadelphia Fed’s own State Coincident Index—a multi-faceted gauge of overall economic conditions—Delaware trends in a positive direction.

This progress is made possible in no small part through carefully balancing both hard and soft data in the broader discussion of monetary policy.

Now, surely, economic challenges remain, both national and international in scope. But if 2023 was the year in which some of the clouds of economic uncertainty began to dissipate, I am hopeful that 2024 will be the year in which they disperse, and our forward economic path will come much more clearly into view.

As always, I will be guided in my decision making by the data. But I will also continue to be guided equally by your insight and input. I will continue to keep my eyes and ears open to what is happening across Delaware and in your home communities. By working together, we can continue to make progress.

Patrick T. Harker is president and CEO of the Federal Reserve Bank of Philadelphia.

The views expressed here are solely those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. This piece originally appeared in the January 5, 2024, edition of The Weekly Report, a digital newsletter of the Delaware State Chamber of Commerce. Data Sources: Haver Analytics, U.S. Census Bureau, U.S. Bureau of Labor Statistics, and U.S. Bureau of Economic Analysis.