"With a rebound in growth, and indications that inflation is picking back up, the Federal Open Market Committee will feel comfortable raising the Federal funds rate target from its current near-zero level at its September meeting," PNC Bank economists predicted in this report late last month.
Fed chair Janet Yellen and the gang won't wait til next year? "Businesses are hiring, they have a lot of cash, and we're seeing wage growth pick up. We got very good retail sales this morning. We think the (slow) first quarter was an aberration. So we expect inflation to move a little higher, now that energy prices have stabilized," says Augustine "Gus" Faucher, the Penn-trained economist (and Radnor High grad) who serves as PNC's senior economist (he previously worked for Mark Zandi at Moody's Economy.com in West Chester).
Won't borrowers and investors panic at higher rates? "It's going to be slow. Maybe three years," Faucher says. "The Fed can afford to be very deliberate." Mortgage and auto-loan rates will likely lag. Investment markets could get jumpy; the strong dollar hurts exports. But this recovering economy can afford higher rates.
Across the state, Pittsburgh has been boosted by upstate Pennsylvania's fracking gas and oil extraction, which is slowing now, he added. Plans by Sunoco Logistics and other energy companies to pipeline more gas to and through Philadelphia will likely help boost industry -- not so much by creating a lot of jobs, as by cutting energy costs and luring more employers back to the region.
Still, Faucher says, metro Philly (unlike, say, Boston, or Pittsburgh) still hasn't gotten its pre-recession job base back. While students and young people flock to Center City, job growth is still weak. There is not enough software or biotech industry in the area, compared to the size of the economy here, and older big employers (financials, chemicals, drug and military equipment makers) aren't expanding.
Why so slow? Maybe it's the local tax structure, maybe it's the smaller start-up culture, Faucher says. Or the lack of immigrants, compared to California or New Jersey. "We do have a lot of advantages in this area, we haven't been able to capitalize on. We ought to be on the cutting edge."