Federal Reserve Bank of Atlanta President Raphael Bostic said the decision to raise interest rates by 25 basis points this week in the midst of a banking crisis was not taken lightly.
(Bloomberg) — Federal Reserve Bank of Atlanta President Raphael Bostic said the decision to raise interest rates by 25 basis points this week in the midst of a banking crisis was not taken lightly.
“There was a lot of debate, this wasn’t a straight-forward decision but at the end of the day, what we decided was there’s clear signs that the banking system is sound and resilient,” Bostic said Friday on NPR News. “And with that as a backdrop, inflation is still too high.”
The collapse of Silicon Valley Bank less than two weeks before the Federal Open Market Committee met created a lot of uncertainty and some of the policymakers debated to wait rather than hike, Bostic said.
“I’m comfortable with the idea that we didn’t see over the weekend before that meeting things getting worse and that made me comfortable that we can manage through this,” Bostic said.
Chair Jerome Powell told reporters during his post-meeting press conference Wednesday that the question of a pause has been considered in the days before the meeting, but during the gathering the consensus for an increase was strong. Powell also emphasized that the US banking system was “sound and resilient.”
Bostic repeated that assessment, while arguing inflation is too high and that requires slowing the economy down.
“I don’t have in my base line a recession at all,” Bostic said. But if the US economy enters a recession, “I hope it will be nothing like we saw in the early 80s,” he added, referring to the sharp economic downturn triggered in part by an aggressive cycle of interest-rate hikes under then Chair Paul Volcker.
(Updates with comments on recession in the last paragraph.)
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