The Fed Can’t Solve All Our Problems, Says Ex-Philly Fed President

Former Fed regional bank presidents Patrick Harker, Charles Evans, and Loretta Mester appeared during the National Association of Business Economics annual meeting in Philadelphia on Tuesday, Oct. 14, 2025. (Hannah Beier/Bloomberg)

Key Points

• The Federal Reserve faces challenges from fiscal policy, threats to its independence, and difficulties in managing labor and inflation.
• Former Fed officials highlight unprecedented attacks on the central bank’s independence and the complexity of current economic conditions.
• There are differing opinions among former Fed officials on rate policy, with some advocating cuts and others a more cautious approach.

The Federal Reserve is facing a mounting slate of challenges that stem from fiscal policy, attacks on its independence, and rising risks to maintaining healthy labor conditions and inflation levels. Policymakers likely can’t resolve them all.

Everybody looks to the Fed to solve the economic problems facing the nation, former Philadelphia Fed President Patrick Harker said Tuesday during an event hosted by the National Association of Business Economics. But the looming problems, particularly when it comes to the fiscal side, such as the ballooning national debt and rising deficits, are much deeper than can be mitigated by just moving the fed-funds rate around by a quarter or even half a percentage point, Harker added.

“The Fed needs to be very clear on what it can do, and what it cannot do,” Harker said. “You cannot expect monetary policy to solve all these problems—and I think that’s getting lost.”

The biggest problem facing the Fed currently is maintaining its independence, Harker said. He noted that there have been a series of attacks—through President Donald Trump actively discussing firing Fed Chair Jerome Powell to attempting to terminate governors to threatening the very existence of regional federal reserve banks—that have really posed major challenges to the future and stability of the central bank.

“There is no example in this country or throughout the world that you can point to and say when the politicians stuck their hands into monetary policy, it turned out great. This never turns out well,” Harker said.

While there have been disagreements between presidents and Fed policy in the past, it feels different under Trump, says former Cleveland Fed President Loretta Mester. In particular, the level of vitriol and the constant, continual attacks on the central bank, and Powell specifically, by the current administration are unprecedented, Mester noted.

The fact that employment is cooling at the same time inflation is rising presents yet another complication for the Fed. “This is a hard situation,” Mester said, and not just because the government shutdown has disrupted and delayed the release of official economic indicators that policymakers depend on to weigh the risks of policy moves.

“We have supply changes and demand changes and whenever you have structural changes happening along with demand changes, it makes for a much more difficult decision-making process to understand what’s really happening in the economy,” Mester said.

But like the current members of the Federal Open Market Committee, there’s still a divergence of opinions on what the most sensible path forward is for rate policy—even among the former Fed officials.

The Fed has to take into account that the labor market is much weaker than previously thought, Mester said. She adds that economists and Fed officials have to get their heads around the fact that there’s going to be fewer jobs a month needed to hit the break-even point for employment growth because of the falloff in immigration. “We have to partly rethink our rules of thumb to really understand what’s going on,” Mester said.

Mester doesn’t have a problem with where rates are now, or the quarter percentage point cut in September that brought the current target range for the fed-funds rate to 4%-4.25%.

But she does worry that the U.S. still has an inflation problem and the current members of the FOMC could fall prey to the same thing that policymakers did in the prior inflation run-up—not fully entertaining the possibility that there are other ways things could play out. In this case, higher tariffs could lead to more persistent inflation.

“We have this shock on [higher] tariffs, which some have said is a one-off and we can look through them, but I will remind you that same logic was used in the postpandemic period,” Mester said.

It makes sense at this point to move a little closer to what economists assume is the neutral rate of policy, or the theoretical rate that neither stimulates nor restricts economic growth, added Charles Evans, former president of the Chicago Fed. He contended that cutting rates could be helpful for addressing labor market weakness and expects that inflation pressures will ultimately prove temporary.

Harker, meanwhile, advocates for a more hawkish stance. “We should be a little cautious here,” Harker said. “For me, sitting here and not moving [rates] for one, maybe more, meetings—that would be the prudent thing to do.”

Write to Megan Leonhardt at megan.leonhardt@barrons.com