Federal Reserve officials unanimously call for "patience" and Harker says interest rates have not reached a "substantial constraint" level.

Cleveland Federal Reserve Chair Betsy Havamack said that current interest rates have not reached a "substantial constraint" level, and officials should maintain stable rates for a period of time, waiting for evidence that inflation is returning to the 2% target level. Havamack's message is in line with the views of other Federal Reserve officials who spoke on Thursday. While they vary in their caution about the economic outlook, no one has hinted at any intention to cut interest rates in the near future. Havamack also pointed out that monitoring inflation expectations and other indicators is crucial in assessing whether the financial environment is in line with the Fed's efforts to suppress inflation. In a speech prepared for a conference in New York on Thursday, Havamack said, "I believe that there is room for patience in assessing the future path of monetary policy. This likely means maintaining the federal funds rate stable for a period of time." Kansas City Fed Chair Jeff Schmidt issued a more cautious signal, mainly due to recent increases in inflation expectations and concerns about economic growth. At an event in Arlington, Virginia, Schmidt said, "Although there are upward risks to inflation, communications with contacts in my region and some recent data suggest that high uncertainty may weigh on economic growth. This means the Fed may need to strike a balance between inflation risks and growth concerns." Philadelphia Fed Chair Patrick Harker, on the other hand, was more optimistic. He reiterated his confidence that with patience, the current Fed policy stance is sufficient to control price pressures. Harker said, "The policy rate remains sufficiently restrictive to continue to exert downward pressure on inflation over the long term as needed, without adversely affecting other aspects of the economy." Waiting for cooling inflation Federal Reserve officials kept interest rates unchanged last month, after cutting borrowing costs by a full percentage point at the end of last year. Policymakers said they want to see more evidence that inflation is moving towards the central bank's 2% target, while also hoping for more clarity on President Donald Trump's economic plans. Cleveland Fed Chair Havamack said the impact of last year's rate cuts on the economy may take some time to show, adding, "The acceleration of economic activity could potentially slow down or impede the process of inflation declining." She also noted that interest rates may already be "close to a neutral level," meaning that under this policy stance, rates will neither slow down nor stimulate economic growth. Her comments sharply contrast with remarks made by Federal Reserve Chair Jerome Powell last month. Powell had said that even after the rate cuts last year, rates still have a "substantial constraint." Havamack had previously stated that rates should remain unchanged "for a period of time" as officials wait for more progress in inflation. The Cleveland Fed chair had voted against the 25 basis point rate cut in December, believing it was more appropriate to keep rates stable until further cooling of price pressures. The latest data on the inflation indicator closely watched by the Fed - the Personal Consumption Expenditures Price Index - will be released on Friday. Officials will hold their next policy meeting on March 18-19. Financial risks In her speech, Havamack spent a large portion discussing topics related to financial stability, including hedge fund leverage, non-bank lending (including so-called private credit) growth, and the U.S. Treasury market. When discussing private credit, she emphasized its lack of transparency, continual expansion, and associated issues with insurance and pension funds. Havamack pointed out, "It's worth considering what impact significant losses to pension and insurance companies during an economic downturn may have, and whether these risks could spread to the broader financial system. We need to consider what broader consequences regulatory requirements that encourage lending activities outside the banking system will have." She also criticized banking regulations implemented since the financial crisis of 2007-2008, which seem to hinder market-making activities in the $28 trillion U.S. Treasury market, thereby reducing market liquidity during crises. She said, "Recent research suggests that the growth potential of the U.S. Treasury market may exceed traders' ability to effectively and safely intermediate transactions in the cash and repo markets. This situation means that we need to weigh the costs and benefits of restrictions on traders (such as the supplementary leverage ratio, or SLR, and the leverage ratio) for market-making activities."