Bostic: US Interest Rates Sufficient
Atlanta Federal Reserve Bank President Argues Against Further Interest Rate Hikes
Atlanta Federal Reserve Bank President Raphael Bostic made a compelling case on Thursday for halting any additional U.S. interest rate hikes. In his speech at the South African Reserve Bank Biennial Conference in Cape Town, South Africa, Bostic emphasized that current monetary policy is already sufficiently restrictive to bring inflation back down to the desired 2 percent level within a reasonable timeframe.
“I feel policy is appropriately restrictive,” Mr. Bostic stated. “We should exercise caution and patience, allowing the restrictive policy to continue influencing the economy. Otherwise, we risk tightening too much and causing unnecessary economic pain.”
However, Bostic clarified that his stance does not imply support for easing policy in the near future.
During the upcoming meeting in less than three weeks, U.S. central bankers are widely expected to maintain the Fed’s policy rate within the current range of 5.25 percent–5.5 percent. However, financial markets are pricing in a nearly equal chance of the Fed raising the rate by another quarter of a percentage point by the end of the year. This expectation is driven by persistently high inflation, stronger-than-expected economic growth, and a low unemployment rate of 3.5 percent.
In mid-June, a majority of U.S. central bankers believed that a Fed policy rate between 5.5 percent and 5.75 percent would be necessary to effectively combat inflation.
Contrary to this majority view, Mr. Bostic has consistently cautioned against excessively tight policy measures that could harm employment and livelihoods.
Bostic highlighted the positive impact of the 5.25 percentage points of interest rate hikes implemented since March 2022. These hikes have already contributed to a significant decline in inflation, with consumer price inflation dropping from a peak of 9 percent last summer to 3.2 percent in July.
Furthermore, Bostic pointed out that the current housing services inflation data does not yet reflect the decrease in rents, suggesting that the underlying pace of inflation may already be close to the target.
Business surveys indicate that fewer firms plan to raise prices, and the percentage of items within the consumer price index experiencing inflation rates of 5 percent or higher has decreased from 80 percent to 35 percent since last summer.
Additionally, Mr. Bostic noted that the labor market is cooling, and employers do not intend to increase prices to match higher wages.
In conclusion, Bostic emphasized the importance of the Fed remaining steadfast in its commitment to tight policy until it is evident that inflation is on track to reach the desired 2 percent goal.
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