Philadelphia Federal Reserve President Patrick Harker said Wednesday that he does not expect the Fed to raise interest rates in 2022, despite bond market bets that a rate hike could come next year.
“I think we’ve got a ways to go,” Harker told Yahoo Finance in an exclusive interview on Wednesday.
The yield on the U.S. 10-year Treasury reached 1.47% as of Wednesday afternoon, almost 50 basis points higher than where the bond traded a month ago. Higher bond yields imply higher longer-term borrowing costs, raising questions on whether or not the Fed feels pressure to depress those yields.
Evercore ISI wrote Wednesday that the surge in yields implies a pulling forward of rate hike expectations to as soon as 2022.
Harker said the Fed could consider yield curve control, a strategy in which the central bank commits to purchasing U.S. Treasuries of a targeted maturity until their yields fall below stated levels.
“At this point, all of those are under discussion, and I wouldn't take anything off the table,” Harker said.
The Fed is currently purchasing “at least” $120 billion in U.S. Treasuries and agency mortgage-backed securities each month. But Harker said he is not seeing inflationary pressures from the Fed’s extraordinary accommodation.
Harker said he expects inflation to run at 1.7% year-over-year in 2021, which would be below the Fed’s 2% target. He added that he expects 3% to 4% GDP growth this year with the unemployment rate “hovering a little north of 5%” by year’s end.
Those forecasts assume $900 billion in stimulus, but Harker said if the package clocks in closer to the Biden administration’s goal of $1.9 trillion, he would tolerate inflation rising above 2%.
“But what we don’t want to see is inflation running out of control,” Harker added.
Harker said he is particularly concerned about the job loss among low-income workers, particularly in Black and Latinx communities.
In Pennsylvania, the Black unemployment rate is 17.2%, almost 10 percentage points higher than the white unemployment rate of 7.8%.
“Just because you're low income doesn't mean you don't have skills. Everybody has a certain set of skills,” Harker said. “And so how do you use those skills and get rid of some of the other impediments to those opportunities?”
The Philadelphia Fed recently launched its Occupational Mobility Explorer website, which allowed users to see what kinds of jobs with transferable skills are available in their metro area.
Harker said he hopes the tool can help the unemployed start to build a plan to move back into the labor force post-pandemic.
With the national unemployment rate at 6.3%, Harker said the Fed remains a “ways off” from maximum employment — one of the Fed’s dual mandates.
“I’m a pragmatist by nature. We were down at those low levels before the pandemic. That, kind of, should be our goal,” Harker said, mentioning the 3.5% unemployment rate that the U.S. had before the pandemic.
The Fed’s next policy setting meeting will take place March 16 and 17.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.