Federal Reserve Bank of Philadelphia President Patrick Harker has suggested that a rate hike is not entirely ruled out. While he mentioned that the Fed Funds rate is likely to stay on hold, he stated that potential movements could occur in either direction.

He indicated that there may be a greater chance of a rate cut in the future, but there are no immediate plans for an increase. Harker described the current policy as mildly restrictive and observed that the labour market is aligning with previous trends, noting that shelter inflation should decline at some point.

Patrick’s comments highlight that there is still some uncertainty surrounding future policy moves. While he leans towards keeping rates steady for now, he has not completely dismissed the possibility of another hike. That alone suggests that those expecting an immediate shift to lower rates may need to adjust their expectations.

The fact that he sees policy as only mildly restrictive is also worth noting. If conditions do not tighten enough to slow inflation further, there may be less urgency to cut. At the same time, he appears to believe that broader trends—particularly in jobs and housing costs—are moving in a direction that could support lower rates later on. His view that shelter inflation should decline implies that one of the more persistent contributors to overall price growth may ease, removing a barrier to policy adjustments.

Given this backdrop, positioning based on an assumption that cuts will arrive quickly carries risks. There are indications that rates could stay where they are for some time. The possibility of an increase, even if not the most likely scenario, must at least be factored into decision-making. Any trades that assume a near-term shift in policy could be exposed if incoming data does not justify one.

Inflation readings in the coming weeks will play a role in shaping expectations. If price pressures remain stable or ease further, mentions of potential cuts may grow louder. However, any stubborn inflation prints could reinforce the argument that patience is required before any adjustments take place. Labour market trends will also matter. Patrick’s suggestion that employment conditions are aligning with past norms suggests that policymakers see fewer risks of overheating. But any sudden changes in job growth or wages could alter that view.

There is also the question of how markets respond to this messaging. If investors continue to expect cuts sooner rather than later despite warnings that policy could remain tight, it could lead to volatility when reality does not match those assumptions. That would be particularly relevant if stronger-than-expected economic data forces a repricing of expectations.

In short, while rate cuts may still be likely down the line, there is no definitive timeframe. The risks of holding firm for longer—or even tightening again—are not entirely off the table. That means any moves based purely on the idea that lower rates are just around the corner come with dangers that should not be ignored.