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.

Two negative quarters of gross domestic product (GDP) growth are seen by many investors as a recession, though the National Bureau of Economic Research makes the final call on "official" U.S. recessions.

Last week, Fed Chair Jerome Powell said at a press conference that a 50 or 75 basis point increase "seems most likely" following the central bank's July meeting given the current inflationary and economic backdrop, while adding the goal was to still avert tipping the economy into a recession in the process.

And in the days since Powell's comments, other FOMC officials have already signaled support for another rate hike of this magnitude. Richmond Federal Reserve President Thomas Barkin said Tuesday that guidance for a 50 or 75 basis point interest rate hike in July "feels pretty reasonable," while noting his rate outlook could be adjusted depending on how the economy evolves over the coming weeks.

"I think we've been very clear that we need to move to a restrictive stance," Harker told Yahoo Finance Live. "How we get there is dependent on the data. So we can't be that precise, [with] what we're going to be doing in September or December right now. I mean, the data will dictate that."

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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