Philadelphia Fed President Harker ‘very concerned’ about inflation


In remarks at a Delaware State Chamber of Commerce virtual event, Philadelphia Federal Reserve Bank President said inflation has become a major concern in Delaware and elsewhere.

“When I addressed this group almost exactly a year ago, I called the economic recovery, both nationally and here in Delaware, a “work in progress. I think that still holds. Economic growth and employment are robust, but I’m very concerned about inflation,” Harker said in prepared remarks.

Harker went on to cite stronger job and wage growth as positive developments but noted that wage gains have not kept up with the rate of inflation.

Delaware seeing similar trends

“The (Delaware)  unemployment rate is nearing pre-pandemic levels, overall gains in payroll employment have been steady, labor market conditions are tight, and the housing market remains hot. Consumer traffic to workplaces and other non-residential locations has increased substantially, though transit use remains almost 40% below where it was prior to the pandemic,” Harker said.


Harker continued, “Total employment in Delaware is now about 14,000 jobs below where it was when the pandemic struck. Job openings were at a historic high in January, the quits rate remains elevated, and layoffs are very low. Employment in financial services is where it was prior to Covid-19’s arrival, while leisure and hospitality employment remain somewhat depressed.”

Harker pointed to the cost of child care as a factor in the high rate of unfilled jobs.

Childcare and unfilled jobs

“The problems are acute here. To cite just one statistic, Delaware families spend about 20 percent of the median household’s income to care for one child, an unsustainable burden,” Harker.

He pointed to the current work that the Philadelphia Fed and the Delaware Chamber have been doing in a joint effort to address the child care issue.

Harker noted that the Fed raised interest rates and will take other actions. He did not that signs are pointing to an easing of supply chain issues, but added that the nation is not “out of the woods.”

“I do see the potential for a significant uptick in the service sector in many large cities that are only now waking up after a two-year pandemic-induced hibernation,” Harker said. “Central business districts in cities like New York, San Francisco, and Philadelphia should get a boost as more workers return to their offices — the staff of the Philadelphia Fed included. The rise of hybrid work may moderate the potential for a huge boom, however. There is a big question mark hanging over the future of commercial real estate.”

Inflation could wind down

“Inflation should begin to taper this year too — but remain elevated, probably around 4 percent for 2022. The following two years should bring it back to our target of 2 percent. All of these forecasts, of course, are freighted with uncertainty,” Harker said.

While there has been concern about the end of forbearances on federally backed mortgages under the CARES Act, Harker said. Federal Reserve research indicates that nearly three-quarters of those who exited the program are current or are making use of payment deferrals or loan modifications.

“While this has had undeniably negative impacts on those seeking to enter the housing market, it does ensure that borrowers can avoid losing their homes and that banks won’t suffer losses large enough to meaningfully affect their capital positions. Homeowners are sitting on more than $10 trillion of tappable equity — a record. The contrast with the Great Recession is remarkable; you’ll recall back then that nearly half of all distressed borrowers were “underwater,” Harker noted.

At the same time, nearly one million mortgages are seriously delinquent, with Black and Hispanic borrowers having much higher rates of nonpayment.

Modifying mortgages

“Lenders may want to consider solutions that limit the costs of modification while providing more payment relief to borrowers. One such solution is for the Federal Housing Administration to offer 40-year modifications. This will lower the cost relative to the 30-year option and provide more relief to borrowers,” Harker said.

It’s worth noting now that protections against foreclosure expired on December 31, 2021, and foreclosure starts are back to their pre-pandemic levels too.

Another area of concern was the lower rate of Black, Hispanic borrowers, and lower-income borrowers in Delaware and elsewhere who did not finance their mortgages at lower interest rates. 

Harker said the research indicates that lenders should do more to communicate opportunities to refinance. He noted that lenders saw fewer applications for refinancing from those with lower incomes, rather than a high rate of denials

Harker issued the usual disclaimer about his remarks not representing those of the Federal Reserve..

While Harker is not a member of the rate-setting committee of the Fed, all governors are part of discussions on raising interest rates and their statements are monitored by investors.

In Thursday trading, stocks were down oni signs that the Fed will take a more aggressive stance on inflation.

Click here for the text of Harker’s remarks.