Fed's Harker: Penciling in Dec Rate Hike, 3 More Next Year

--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

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