Fed's Harker Says U.S. Close To Meeting Inflation Goal For Rate Hikes

The US Federal Reserve may be close to meeting the inflation mandate set for raising interest rates, Philadelphia Fed Bank President Patrick Harker said, but it may be a year or longer before the central bank's employment goal is met to allow for an actual rate increase, Jonelle Marte reported for Reuters.

Photo Insert: Philadelphia Federal Bank President Patrick Harker

After running high this year because of the pandemic, inflation is likely to come down closer to the Fed's 2% target over the next couple of years, Harker said in an interview with Reuters on Thursday.

"We'll see how it pans out over the next couple of months, but I think we're pretty close to, or already have, achieved our inflation goal of running, averaging above 2% for a while so we can average over the longer-run 2% inflation," Harker said.

If the economy continues to improve as expected, it could potentially reach a point as soon as 2023 where the Fed's mandates for both inflation and maximum employment have been met, he said. His forecast is for the U.S. unemployment rate to drop to about 4% by the end of next year, 3.8% by 2023, and 3.6% by the end of 2024.

"At that point, I think the economy should be healthy enough to tolerate some small increases in the Fed funds rate," said Harker, adding that low interest rates can increase financial stability risks and hurt savers and people on fixed incomes.

But he emphasized that the central bank will not be removing accommodation anytime soon. The Fed will still be adding accommodation even after it starts to reduce its bond purchases from the current pace of $120 billion a month, just at a slower rate, Harker said.

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