MNI: Fed's Harker Sees Soft Landing For US Labor Market
Employers are reluctant to let go of workers as they have been hard to find, Philadelphia Fed president says.
The U.S. jobless rate should peak at 4.5% next year when interest rates are at their highest before retreating again, resulting in a soft landing for the economy, Federal Reserve Bank of Philadelphia President Patrick Harker said Tuesday.
He also reiterated that rate hikes will slow in "upcoming months" and the FOMC is likely to hold rates at a restrictive stance for a while starting next year to let tighter monetary policy work its way through the economy.
By 2024, the unemployment should fall to 4%, "which suggests that, even as we tighten monetary policy, labor markets will stay quite healthy," he said in remarks prepared for the Global Interdependence Center.
Manufacturers in the Philadelphia Fed region have told the Fed bank "they will be extremely reluctant to cut jobs even as the economy slows" given how hard they had to work to staff up, Harker said. "That gives me confidence that we can bring inflation under control without doing unnecessary damage to the labor market," he said.
It will be appropriate to step down the size of the Fed's rate hikes to 50 bps from 75 bps soon, Harker said. A number of other Fed officials have made the same point since the Fed's November meeting two weeks ago.
"In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance," Harker said.
It will take some time for inflation to fall, he added, noting his forecast for core PCE inflation to end the year at 4.8% before falling to 3.5% next year and 2.5% in 2024.
"At some point next year, I expect we will hold at a restrictive rate for a while to let monetary policy do its work. It will take a while for the higher cost of capital to work its way through the economy."