Harker: Fed likely to raise rates twice this year
July 14, 2016
Joseph N. DiStefano, Philadelphia Inquirer
Excerpts from Federal Reserve Bank of Philadelphia president and ceo Patrick T. Harker's talk Wednesday for the Economy League of Greater Philadelphia:
"The people of the Greater Philadelphia region embody grit — this is who we are" (cf Penn Prof. Angela Duckworth). "But how do we translate the grit that defines us into a stronger workforce that will be the foundation for a stronger economy?...
GROWTH, A BIT FASTER: "Economic fundamentals appear to be solid, personal income growth has been healthy, job growth continues... There has been a modest increase in equity prices and continued steady growth in home prices... Consumers appear fairly confident... (GDP growth) is likely to accelerate to a bit above 4.0 percent in the second quarter...
"An alternative measure of economic activity produced at our Bank, called GDPplus, indicates that the economy grew at 2.3 percent in the first quarter... I anticipate that we will see growth of about 2.0 percent in 2016, increasing to roughly 2.3 percent in both 2017 and 2018...
HELP WANTED? "Job openings remain at historic highs, and the high level of the quits rate indicates that workers feel fairly confident... Over the past three months, average hourly earnings have increased at a 2.5 percent annualized rate... (Employers say) finding those workers with sufficient skills is getting... difficult...
"Areas of concern (include) the manufacturing and energy sectors... Orders in April and May also do not point to any near-term strength in investment.
"Inflation will return to target sometime next year... Brexit is low on my risks...
INTEREST RATES SHOULD RISE: "Considering the economic projections, I anticipate that it may be appropriate for up to two additional rate hikes this year and that the funds rate will approach 3.0 percent by the end of 2018...
PHILLY NOT TRAILING AS MUCH: "Philadelphia’s economy is heating up. Job growth in the metropolitan area began outpacing U.S. job growth this year, which is not the norm... Philadelphia’s growth is beginning to keep pace with that of other comparably sized U.S. metropolitan areas.
"Employment is up in nearly every sector... More people are joining the labor force due to greater job opportunities," at least for now.
"Growth has been dramatic within the City of Philadelphia.... To continue on this path, productivity growth is essential... 1) through the development of better technologies... 2) by improving the skills of our workforce... "
START EARLY: Which begins, Harker says, "with pre-K for all children (which the Economy League backs)....
"In these early days of school... character, self-esteem, and work ethic — the foundations of grit — are developed... It will produce a pipeline of future Philadelphians with the grit to take on the hard work ahead, (and) make us a more desirable place for skilled people to live...
INSTEAD OF COLLEGE: "College is not for everyone. But what is not OK is that our region has 106,000 disconnected youths, young people who are not in school or not working...
"(Maybe) average high school curriculum is not rigorous enough to prepare youths for college. Or maybe it’s that many students who pursue college do not feel — rightly or wrongly — that the average curriculum is helpful for future employment...
"This college completion rate decline leaves our economy with young people saddled with school loan debt, without a degree, and no higher paying job to pay off this debt.
"As an economist, I see a growing mismatch between what our education sector offers to students and the skills and training our business sector increasingly needs. This disparity — if left unattended — will have a significant impact...
SKILLS TRAINING: "As a region, we must focus on creating a training system that is more agile, one that works in real time for our industries in need, our disconnected young people, and our long-term economy... There are huge opportunities to expand (apprenticeship) programs...
"The Delaware Valley chapter of the National Tooling and Machining Association plans to develop an apprenticeship program in precision machining...
"Collaborative leadership — like that demonstrated by the Economy League... (empowers) our region (to) think critically and act decisively on behalf of our region’s economic future...
"The Philadelphia Fed (has) created a new council, made up of both for-profit and nonprofit leadership, with the purpose of working collaboratively to address the critical issues impacting our region...
READ THE NEWSPAPER: "When I think about all we are discussing today, I picture myself opening up the Philadelphia Inquirer in 2026 and flipping to the business section — and, yes, I believe I will still be reading a paper publication in 2026. I also believe that, if we stay focused, I will be reading about the fruits of our labor...
DIVIDENDS: "The investment we make in human capital will position us for a healthy tomorrow."