The U.S. economy is starting to show signs of softening demand, which if continued, could make the case for a slightly less aggressive interest rate hike in July, Philadelphia Federal Reserve President Patrick Harker said Wednesday.

"We are, again, starting to see some signs of demand softening, which is exactly what we want," Harker told Yahoo Finance's Brian Cheung Wednesday morning."We don't want it to crash. We want to bring the economy into a safe position and in balance with supply and demand."

Harker's comments suggest the economy has already started to show signs of cooling following the Fed's interest rate hikes unleashed so far this year, which has brought the Fed Funds rate to between 1.50% and 1.75%.

Harker, an alternate member of the Federal Open Market Committee this year, voted in favor of the central bank's 75 basis point interest rate hike last week.

A 'couple quarters' of negative GDP

A further softening in demand in the U.S. economy could help bring down inflation, which is currently running at its hottest level in 40 years, back to the Fed's 2% target. And if evidence of a moderation emerges, the Fed may not need to raise interest rates as swiftly as it did this month, Harker suggested.

"I'm not ready to make a final decision ... exactly where I am between 50 and 75 [basis points]," he said. "If we start to see demand soften — and we are seeing some signs that demand is starting to soften in certain sectors of the economy. And if it's softening quicker than I anticipate, then it may be appropriate to go with a 50. If it's not, then it's probably appropriate to go with the 75. But let's see how the data turns out in the next few weeks."

One of the main concerns for market participants, however, has been over the extent to which larger-than-typical interest rate hikes might ultimately disrupt the economy, or tip the economy into recession.

"We could have a couple of negative quarters [of GDP growth]," Harker said. "But I think the situation we're in right now is — and this word is overused — unprecedented. But I really think it is unprecedented. We came into this pandemic with a very tight labor market and a very strong economy. We still have very tight labor markets. So the historical examples that you would rely on in this situation don't quite fit. This is unique, so I think we have to recognize that and execute policy based on what we're seeing, not based on some historical example."

In recent days, several major Wall Street banks have penciled in an increased risk of a recession, largely on concern that the Fed will hike interest rates to the point of tipping the economy into a downturn in order to rein in inflation.