Federal Reserve Bank of Philadelphia President Patrick Harker joined the widespread calls by his policy-making colleagues for higher interest rates this year, saying he favors a March liftoff and three or four hikes for the 2022.
“The inescapable logical conclusion of this situation -- inflation higher than we want and a very robust jobs market -- is to tighten monetary policy,” Harker said Thursday to a virtual event hosted by the Philadelphia Business Journal.
Harker joins a large group of Fed officials -- led by St. Louis Fed President James Bullard and including one-time doves such as San Francisco leader Mary Daly -- in urging a near-term rate hike following the tapering of asset purchases, which is scheduled to end in March.
“My forecast is that we would have a 25 basis-point increase in March, barring any changes in the data,” Harker said in response to audience questions. “If I were to make that decision today given what I know today, I would be for that.”
“I have three 25 basis-point increases penciled in for this year,” he added. “I could be convinced of a fourth if inflation is not getting under control. But again, we have to look at the data.”
Harker, acting as the alternate this year for the Boston Fed which is currently without a president, is expected to vote in its place on the policy-setting Federal Open Market Committee until that seat has been filled.
Harker said he sees the Fed starting to shrink its balance sheet in “in late 2022 or early 2023” after the central bank has raised its target rate sufficiently, to around 1% from near zero. He said he favored moving to a balance sheet concentrated in shorter-duration Treasuries, with Treasury-heavy or Treasury-only composition over time.
While the U.S. economy has lost jobs since the start of the Covid-19 pandemic, that represents a supply issue, he said. Demand for employees is very strong and the Fed has met its target of maximum employment, Harker said in his prepared remarks. Meanwhile, inflation has surged much higher, which raises the concern that inflation expectations could become unanchored, he said.
The U.S. economy is likely to grow 3-4% this year, with the first quarter hurt by the omicron variant, Harker said.
“So many people are becoming infected simultaneously that businesses can’t staff themselves,” he said. “Airlines are canceling flights, restaurants are shuttering their kitchens, and big-box retail locations are closing down temporarily.”
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