Federal Reserve Bank of Atlanta President Raphael Bostic put the dovish case for keeping interest rates on hold, repeating his view that officials have already done enough to bring inflation down to their 2% goal.
(Bloomberg) — Federal Reserve Bank of Atlanta President Raphael Bostic put the dovish case for keeping interest rates on hold, repeating his view that officials have already done enough to bring inflation down to their 2% goal.
In remarks that contrast with the more hawkish message from Chair Jerome Powell and some other officials this week, Bostic said that the Fed’s aggressive tightening since March 2022 would be sufficient to cool prices.
“Our policy rate is 5% to 5.25%. I think that’s moderately restrictive and I think that today that could be enough to get us back to the 2% target,” he said Friday. “I’d be comfortable with the information I have today, staying right where we are and just staying here through the rest of this year and long into next year,” he told event in Atlanta hosted by the University of Georgia Terry College of Business.
Bostic has emerged as one of the more dovish policymakers urging patience as officials confront high inflation, though most of his colleagues appear committed to continuing their most muscular tightening campaign since the 1980s.
They held interest rates steady last week after 10 straight hikes, giving themselves more time to evaluate how the economy is responding to recent banking stress and higher borrowing costs. But their latest forecasts show two more quarter-point moves this year, according to the median projection.
Powell reinforced that outlook during congressional testimony this week, repeatedly telling lawmakers that officials expect rates need to move higher to reduce US growth and contain price pressures. He called the projections a “pretty good guess” if the economy performs as expected.
Bostic acknowledged the dot plot, as the rate projections are widely known, called for two more hikes while also pointing out there was a range of views on the outlook for this year and next.
“It leads to us having a very robust conversation,” he said. “I think we will continue to have that in the months to come as we get more and more information and guidance on where things are.”
Investors, for their part, remain unconvinced officials will follow through. They expect just one more 25 basis-point increase by the November meeting of the Federal Open Market Committee, according to pricing in interest-rate futures, and fully anticipate the Fed will be cutting rates by the March 2024 meeting.
Policymakers say the divergence of views between the market and the dot plot suggests that investors expect inflation to fall faster than the central bank, which has been wary of being too optimistic after being slow to respond to surging prices.
After months of strong consensus on the need to raise rates, officials are starting to become more divided over the best course to take to cool inflation. Price pressures are abating but remain more than double the Fed’s target.
San Francisco Fed President Mary Daly told Reuters in an interview published later Friday that two more rate hikes this year was a “very reasonable” projection.
Fed Governor Michelle Bowman said Thursday that “additional policy-rate increases will be necessary” to curb inflation that is still unacceptably high. And Richmond Fed President Thomas Barkin, also speaking Thursday, said he’d be “more than comfortable doing more” on rates if price pressures don’t ease as expected.
Officials are seeing some signs that policy is working but other signs are disappointing, Boston Fed President Susan Collins told MassLive.
Bostic and Chicago Fed President Austan Goolsbee have been supportive of patience and cited lags in monetary policy affecting price pressures as a good reason to not do too much.
–With assistance from Jonnelle Marte.
(Updates with Daly comment in 12th paragraph.)
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