MNI: Harker Prepared To Hike Before Taper Ends If Prices Surge

Philadelphia Federal Reserve President Patrick Harker indicated Monday that it is possible that interest rates could rise before tapering of bond purchases is finished, but only if inflation fails to subside next year as he expects.

"I don't expect that the federal funds rate will rise before the tapering is complete, but we are monitoring inflation very closely and are prepared to take action, should circumstances warrant it," he said in the text of a speech to the Economics Club of New York. The Fed last week began a taper that at the current pace could end around mid-2022.

"Inflation is more widespread across products and services than it was earlier this year," he said. "I am acutely aware that this period of rising prices is painful for many Americans. But I do expect inflation to moderate next year as supply chains come back online and bottlenecks ease."

The current burst of inflation is the product of a lack of workers and products being delivered, Harker said. "The economy is continuing to recover," he said, "but it is doing so under constraints." He predicted GDP growth exceeding 4% next year and slowing to around 2%-3% in 2023.

Fed adviser Diane Swonk told MNI last week the central bank will likely slow its bond buying more quickly than the newly-unveiled plan for a USD15 billion monthly reduction, potentially as early as its next meeting in December, to be able to raise interest rates three times next year. Chair Jerome Powell told reporters that a hike wasn't really discussed at the last meeting because the full employment test hasn't been met.