Federal Reserve Bank of Philadelphia President Patrick Harker said Friday that he would like to begin paring back the central bank’s monetary stimulus to the economy sooner rather than later.
Harker told Yahoo Finance in an interview Friday morning that the labor market recovery still has a “ways to go” on getting unemployed Americans back into jobs. Data from July showed nearly 6 million people out of jobs compared to pre-pandemic levels.
But Harker said the jobs recovery likely isn’t hinging on the central bank’s quantitative easing program, which has been buying trillions in U.S. Treasuries and agency mortgage-backed securities since the depths of the pandemic.
“I don’t see that this accommodation through tapering is really providing a whole lot in terms of support for solving the unemployment problem,” Harker told Yahoo Finance.
The Fed is currently pacing its purchases at about $120 billion a month, a rate that Harker said he would like to begin slowing soon. “I would like to start that sooner rather than later, and move that along briskly,” he said.
The Philly Fed chief said that after the tapering wraps up, the central bank can start to think about eventually lifting short-term interest rates off from near-zero.
“We need to think of policy as a one-two punch: the tapering, and then the Fed funds rate,” Harker said, suggesting that the first post-COVID rate hike could happen in late 2022 or early 2023.
Divergence on the committee
On inflation, Harker said he expects inflation to remain high given supply-chain disruptions around the world.
Inflation data from the Bureau of Economic Analysis released Friday morning showed prices rising by 4.2% on a year-over-year basis. That fast growth rate in the Personal Consumption Expenditure Index, the Fed's preferred inflation measure, hasn’t been seen in over 30 years.
Harker said price pressures could prove to be temporary, but expressed concern over the risk that higher prices end up becoming “more persistent.”
The Philly Fed president’s remarks come on the heels of a speech from the head of the policy-setting Federal Open Market Committee, Fed Chairman Jerome Powell. Powell expressed concern over tightening policy before the labor market had enough time to heal, warning that “such a mistake could be particularly harmful."
Harker, who is one of 18 members on the policy-setting committee, acknowledged that the actual timing of any policy changes will have to be reached by consensus. Some of Harker's colleagues, such as Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari, are in the camp of wanting to wait past September before announcing a taper.
The Philly Fed chief is not a voting member of this year’s committee, which rotates policy-deciding votes among the regional bank heads each calendar year.
“I think we’re reaching consensus that tapering should happen sometime this year, as the chair said,” Harker told Yahoo Finance.
The Fed’s next policy-setting meeting is scheduled for Sept. 21 and 22.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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