Harker Repeats: Three Hikes Seem Right for 2017

If the economy stays on track, three 25 basis point rate hikes would be appropriate this year, Federal Reserve Bank of Philadelphia President Patrick T. Harker said Tuesday.

"Given the state of the economy – more or less back to normal – I continue to see three modest rate hikes of 25 basis points each as appropriate for 2017, assuming things stay on track," he said at The Wharton School of the University of Pennsylvania, according to prepared text released by the Fed. "I've said it before and I don't mind repeating myself: Monetary policy is a fairly limited tool that is fairly limited in its scope. A lot of people would like to see growth above our 2 percent projection. But that's not really up to Fed officials. That's the kind of policy that's outside our purview."

To expand growth, Harker said, "we need to invest in physical and human capital."

The labor market is "more or less back to full health," although U6 unemployment remains high at 9.4%. "While that's still higher than I'd like, it's a far cry from the bad old days of the recession and its aftermath, when U6 reached a peak of about 17%," he noted.

"Quits are still high, layoffs remain low, and job postings are near historical peaks," Harker said. "My business contacts continue to tell me that finding workers, especially in certain occupations, is getting more and more difficult."

Despite the strength, he noted, some areas of the country continue to have labor woes. "We need to pay special attention to the regions and demographic groups that have been left behind. The Fed can help to some extent through our community development work, which focuses on strengthening local economies," Harker said. "But for the most part, monetary policy doesn't have the scope or tools to address these issues head-on. That takes legislative action."

Wage growth also can improve.

Inflation improves, although it remains under the Fed's 2% target, he noted.

Real gross domestic product growth should be 2% this year. "And that 2 percent growth is more or less what we should consider normal for the medium term."

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