By Jonnelle Marte

(Reuters) – The U.S. Federal Reserve is close to fulfilling the inflation mandate for increasing interest rates. However, Philadelphia Fed Bank President Patrick Harker stated that it could take a year before the central bank achieves its employment goal to permit an actual rate rise.

Inflation, which had reached a high point this year due to the pandemic infect, is expected to fall closer to the Fed’s 2% target within the next few years, Harker stated to Reuters Thursday.

Harker explained that while we will see the outcome over the coming months, I believe we are very close to or have achieved our inflation goal. Harker noted, “We’ll watch how it pans out in the next couple of month but we think we’re pretty much at, or already have reached, our inflation target of running, an average above 2%for a while so that we can average over long-run 2% inflation.”

He said that if the economy improves as predicted, the Fed could reach a point in 2023 when both maximum employment and inflation are met. He predicts that the U.S.’s unemployment rate will drop to 4% next year, to 3.8% in 2023, and to 3.6% by 2024.

Harker said, “At that stage I think that the economy should be strong enough to support small increases in Fed Funds rate.” Harker also stated that low interest rates may increase risks of financial instability and affect savers and those on fixed incomes.

He stressed that accommodation will not be removed by the Fed anytime soon. Harker stated that the Fed would continue to add accommodation, even if it reduces its monthly bond purchase pace from $120 billion per month. However, this will be at a slower rate.

Harker stated that the Fed could have more options next year if it winds down its asset purchases quickly to respond to rising inflation. He said that “that is a risk worth watching”, especially since some supply-side disruptions may take several years to resolve.

Harker indicated earlier this week that the Fed should begin to taper its asset purchases in November. Based on the economic performance, Harker also suggested that the central bank might increase interest rates by late 2022 to early 2023.

ETHICS REVIEW ‘APPROPRIATE’

Harker may vote next year as an alternate in the Fed’s monetary policy meetings until a replacement is chosen for Boston Fed President Eric Rosengren, who announced his retirement https://www.reuters.com/business/finance/boston-feds-rosengren-citing-worsening-kidney-condition-retire-sept-30-2021-09-27 earlier this week, as did Dallas Fed President Robert Kaplan.

Rosengren said that his health was the reason for his decision, however Kaplan and Rosengren were being questioned about investments they made in 2020. Meanwhile, the Fed attempted to stabilize the financial market.

Fed Chair Jerome Powell called for a comprehensive review of central bank guidelines. He also promised to fix them. This week, Powell said that the Fed will be reviewing regional bank presidents’ trades in order to verify they are legal and consistent with the current policy.

Harker indicated that he is happy to review the ethics rules and said it was “timely, appropriate”

Harker stated that he took a close look at the investments he made last year and thought it might be time for new rules. He was able to call some municipal bonds he had owned for many years because interest rates dropped. This meant that the bonds were paid before they matured.

It raised the question “Should my municipal bonds be owned going forward?” Harker agreed. Harker said, “This is the reason I believe this important. I hadn’t considered that before.”

Powell also expressed concern about last week’s policy meeting. Powell stated that he requested the ethics office review his municipal investments. This was to ensure that there were no conflicts and that Powell and his wife would not trade their holdings.

Harker stated that the Philadelphia Fed serves the American people. The American people must trust Harker’s objectiveness and best interests. Harker was selected to head the Philadelphia Fed in 2015 However, we need to strengthen our policies if any of these things are in question.