Philly Fed's Harker sees three U.S. rate hikes 2017

(Adds background, additional quotes from speech)

By Richard Leong

SOMERSET, N.J., Jan 20 (Reuters) - Philadephia Federal Reserve President Patrick Harker said on Friday he expects three interest rate increases in 2017 if the labor market improves further and inflation moves to the Federal Reserve's 2 percent goal.

"I see three modest hikes as appropriate for the coming year, assuming the economy stays on track," Harker, who is a voting member of the Fed's policy-setting group this year, said in a prepared speech at an event sponsored by the New Jersey Bankers Association.

"The economy is displaying considerable strength," he said.

U.S. gross domestic product was revised up to 3.5 percent in the third quarter, the fastest pace in two years.

"Consumer confidence is strong, retail sales are still solid - though slightly slower than previously anticipated - and equity markets are up," Harker said.

The core index on personal consumption expenditure, the Fed's preferred inflation gauge, has risen to 1.7 percent with inflation expectations hitting 2 percent, he noted.

"As expectations consolidate around our target rate, it makes it more likely that our target will become reality," Harker said.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)