MNI: Fed's Harker Sees Rate Liftoff As Early As End-2022

Philadelphia Federal Reserve Bank President Patrick Harker said Wednesday he penciled in the first Covid-era interest rate increase for late next year or early 2023, after QE tapering is complete.

He added that "it will soon be time" to begin to wind down the USD120 billion monthly asset purchase program, as QE kept markets functioning during the crisis but "aren't doing much -- or anything -- to ameliorate" labor shortages.

"After we taper our asset purchases, we can begin to think about raising the federal funds rate. But I wouldn't expect any hikes to interest rates until late next year or early 2023," he said in remarks prepared for a virtual meeting of the Risk Management Association of Philadelphia.

Harker will vote on policy next year, taking the place of Boston Fed President Eric Rosengren, who retires this week.

TEMPORARY INFLATION

Harker sees inflation continuing to moderate and end the year at 4%, falling to "a bit over 2% for 2022 and right at 2% in 2023."

Unemployment should "fall steadily during this period as well," he said, but a number of factors are persuading Americans to stay out of the labor force. "Notably, the elimination of extra federal unemployment benefits has not noticeably -- at least not yet -- appeared to nudge people back into the workforce," he said.

Growth could come in at around 6.5% this year, before falling to 3.5% next year and 2.5% in 2023, he said, close to the median FOMC forecast. Persistent supply chain issues or yet another resurgence of the virus present downside risks.