Fed's Bostic open to further rate hikes pending new data, targets summer pause
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Atlanta Fed President Raphael Bostic said Thursday he is going to stay open to the possibility that if economic data comes in stronger than expected there will be a case for higher interest rates in the coming months.
Speaking with reporters on a call Thursday afternoon, Bostic referenced the stronger-than-expected recent inflation and jobs reports and noted updated reads on each will be out before the Fed's next policy meeting on March 21-22.
"I'm going to stay open to any possibility that if data come in stronger than expected then I will adjust my policy trajectory," Bostic said. "There is the case that could be made that we need to go higher. Consumer spending is strong and labor markets remain quite tight and that those suggest that the economy’s strength could be a bit more than people think, which means we might need to do more."
These comments come after Bostic wrote in an essay Wednesday he believes the Fed needs to raise its policy rate by 50 basis points to a range of 5%-5.25%, and hold it at that level until well into 2024. Rates currently stand in a range of 4.5%-4.75%.
Bostic also said he believes once the central bank pauses raising rates it should hold them there, adding he expects the Fed would be in a position by mid to late summer to pause interest rate hikes.
Though Bostic said he wouldn't firmly commit to a policy rate until the meeting he is firmly in the camp of moving in quarter point increments.
It takes time for higher interest rates to work through the economy. And so far, aside from rate-sensitive sectors like housing, the Fed's rate hikes haven't made much of an impression on the economy.
Elsewhere Fed Governor Chris Waller said he's skeptical the Fed may be making progress needed to moderate economic growth and bring down inflation.
Pointing to strong readings on inflation, along with the January jobs report and strong retail sales, Waller said if this run of data continues the Fed may need to raise rates more than expected.
"If job creation drops back down to a level consistent with the downward trajectory seen late last year and CPI inflation pulls back significantly from the January numbers and resumes its downward path, then I would endorse raising the target range for the federal funds rate a couple more times, to a projected terminal rate between 5.1 and 5.4 percent," Waller said in a virtual forum at the Mid-Size Bank Coalition of America.
"On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released."
Waller said recent data suggest consumer spending isn’t slowing that much, the job market continues to run "unsustainably hot," and inflation is not coming down as fast as thought. In Waller's view, bringing down inflation hinges on lowering demand and weakening the economy, but recent retail sales and spending data suggest that progress on this front may have stalled.
Waller also said an excessively tight job market complicates the Fed's job of bringing down inflation because wages are growing faster than in decades, which may contribute to keeping inflation high.
"Although inflation has been coming down since the middle of last year, the recent data indicate that we haven't made as much progress as we thought," he said. "These data underscore the view…that the fight to bring inflation down to our 2 percent target will be slower and longer than many had expected just a month or two ago."
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