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--Want to See Tight Labor Mkt, Wage Growth, Signs of Infl's Return
By Jean Yung
     PHILADELPHIA (MNI) - Federal Reserve Bank of Philadelphia President Patrick
Harker said Friday his base case for policy calls for a December interest rate
increase followed by three more next year, assuming factors supporting a return
of inflation remains in place. 
     "I'm still penciling in an increase in December and three increases for
'18, assuming that inflation comes back," he told a conference held at the Fed
bank. "I emphasize the word 'penciling.' We'll just have to see how things
evolve." 
     He later told media he does not need to see an actual acceleration in
inflation in order to support a December rate hike. 
     "If we start to see wage acceleration, if we continue to see a tight labor
market, that would be the precursor to inflation. So we don't need to see
inflation itself, although it would be nice to see some signs of that," Harker
said.  
     Between now and then, the Fed will need to try to look through distortions
to the economic data caused by an unusually strong hurricane season this summer.
Clearly the storms had an impact on the August inflation data, he said, adding
he expects the weather disruption to subtract 1 percentage point from GDP growth
in the third quarter. 
     But he continues to believe that continued strengthening in the labor
market supporting slightly faster wage growth will lead to higher prices.  
     "I don't think those mechanisms have fundamentally broken down," Harker
told reporters. 
     Fed officials will aim to look through transitory factors in the data to
the underlying trends, but, "If we don't have clarity, we can wait" on the
December hike, Harker said.  
     For now, businesses in his district continue to report difficulty hiring
qualified labor, Harker said. On the other hand, they also say they do not feel
like they can raise price. 
     "At some point that logjam will break," Harker said. 
     Asking to comment on speculation Friday that former Fed Gov. Kevin Warsh
may be a top contender for the next Fed chair after he met with Donald Trump
this week, Harker said he has no opinion on Warsh and has never met him. 
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]