U.S. borrowing is at record levels, interest rates are up, and Social Security is running low on cash. Yet new Federal Reserve Chairman Kevin Warsh has offered investors little information on whether the Fed will boost interest rates and fight inflation, or cut rates to feed growth.
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As a past president of the Philadelphia Federal Reserve Bank, Patrick Harker sat in and sometimes voted at Fed Open Market Committee meetings that decided interest rate targets under Warsh’s predecessors from 2015 to 2025. He says it’s important for Fed leaders to speak clearly.
An engineering Ph.D. who grew up in blue-collar Gloucester City, Harker spent the previous 15 years, first as dean ofthe Wharton business school at University of Pennsylvania, thenas president of the University of Delaware, before he was chosen to run the Philly Fed by the search committee he headed after others declined the job.
Harker finished his second five-year Fed term in June 2025 and reported back to Wharton the next day as a professor. He says he has been putting what he learned there to use.
This interview has been edited for clarity and brevity.
How did you align while you were with the Fed?
People at the Fed asked: Was I a hawk, leaning toward higher rates to fight inflation? Or a dove, leaning toward lower rates to support jobs? I’m an eagle, loyal to this country. I’m for doing what the economy requires.
I’m where the vast majority of Americans are: They’re sick of ideology. It gets us nowhere. It drives countries to ruin. That’s never been us.
We are a pragmatic people. Let’s do reasonable stuff.
Are you worried digital finance will spin out of control?
My particular interest is around operational risks caused by technology. Those come in different flavors:
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Concentration risk: Just a few key firms — Amazon, Microsoft — providing a lot of the financial infrastructure.
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Model risk: Everyone using the same AI models. Some of my colleagues have found that if AI models set prices, they will collude [to illegally boost prices at consumers’ expense]. They will do the same with loans.
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Fraud risk: Faster payments equals faster fraud.
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Market risk, credit risk, and operational risk: We are looking down into the bowels of the systems moving the money and at cyber hygiene.
Will hedge funds’ use of insurance companies to make risky private credit loans fuel the next financial crisis?
If you pull one thread, will it start to fall apart? At the Fed, I was a bank supervisor. I worried about it. I still worry.
It’s not big enough yet to threaten the system [as mortgage losses did in 2008]. But the ‘private’ asset risks eventually all filter back to the regulated institutions.
I said that at a dinner of people in the private credit industry. They said, ‘We know what we are doing!’ They do; the first people in always know what they are doing.
But there’s only so much talent. And now you have people on the fringe taking bigger and bigger risks. And again all hell will break loose, and everyone will have to deal with it. It will go beyond the skill set of the industry.
At the Fed you wrote about radical changes in the workforce. Will AI kill jobs? Do we still need immigrants?
You know Jevons Paradox? Technology puts people out of work, then becomes so cheap, demand for that technology explodes, and so do the jobs providing it.
Will AI improve productivity? It better. Our birth rate is not replacing ourselves. Our immigration policy has flatlined.
It’s the most basic rule of economics: If you want more output, you either get more workers, or better machines.
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I’m more worried that in the United States, we are really bad at helping people make transitions to new kinds of work. A kid will figure it out. But if you’re 40 or 50, what do we do with you? No one cares; you can understand their anger.
Can Congress fix Social Security and the deficit?
I’m less worried about Social Security because politicians know they can’t get reelected without solving the problem.
With the deficit, they keep kicking the can down the road. It really depends on healthcare, a very large part of the U.S. budget. Economists are starting to talk about the Fed losing the ability to set rates [because it is too busy] keeping Treasury’s financing costs down. When debt gets too high, you can’t avert default.
After the Supreme Court said the president can’t fire Fed officials, you wrote about the Fed’s ‘fragility’ on LinkedIn. How did readers respond?
A lot of people want the Fed to be independent.
Fed independence is not a slam dunk. And the Fed’s independence is only around monetary policy. Congress is free to change the bank regulations.
So you have to earn that independence every day. And you have to defy the administration sometimes because it’s the right thing to do.
I worry about the new chair [Kevin Warsh, who has promised to comment less than his predecessors]. The Fed needs to communicate more. Very clearly.
In this country, we’ve all gone into our own herds, we don’t listen to the other side. But if there’s a vacuum in communications, someone else will fill it with their narrative instead of yours.
You protect credibility the institution built over decades by explaining yourself.
What can you make happen now that you’re back at Penn?
I’m a tenured faculty member. I put together an MBA class. I’m publishing academic journal articles on fraud in payment systems. I had to dust off my quantitative brain.
I’m director of academic engagement for Penn Washington. We work with faculty, bringing fact-based, objective content like Kent Smetters’ Penn Wharton Budget Project and Olivia Mitchell’s work on pensions and Social Security to Washington. They aren’t lobbying. They don’t tell anyone what to do. You want to do this; here’s what it costs.
And I’m joining Itay Goldstein at the Wharton Future of Finance initiative.
Billionaire investor Marc Rowan is at the center of your interests. He led a fight to change Penn’s leaders; he backed the Wharton Budget Project, and his Apollo led the private-equity charge into private-credit and insurance.
What motivates him I’m not sure, but he loves this place. His father died when he was here, and the school stepped up with financial aid, he doesn’t forget that.
What do you miss about the Fed?
One of the great privileges of the Fed, when you go to the Open Market Committee, there’s no personal electronics. For two days you have nothing to do but seriously think about what everyone else is saying.
Even if you disagree, it’s in a very professional way. To the public, Washington can look like a big food fight. But at places like the Fed, there are people seriously dedicated to their job.
Are you worried for your grandchildren?
There is hope. People worry everything’s gone nuts; we’re leaving the young people with a giant bill. And a political system that is seemingly broken.
People peddling crazy ideas understand the brain very well: Push these panic buttons. But to quote [former President Richard] Nixon, there is a silent majority who want to have a better life. Not to fight culture wars.