Fed likely to hike rates one more time and then hold steady, Bostic says
The U.S. central bank most likely has one more interest rate rise ahead of it as it continues to work to lower high inflation, Atlanta Federal Reserve President Raphael Bostic said on Tuesday.
“One more move should be enough for us to then take a step back and see how our policy is flowing through the economy, to understand the extent to which inflation is returning back to our target,” Bostic said in an interview with CNBC.
“The economy still has a lot of momentum and is performing quite strongly, and inflation remains too high,” Bostic said, adding that “by pretty much every measure that you look at, current inflation is more than double what our target is. So there’s still more work to be done and I’m ready to do it.”
The Fed‘s inflation target is 2 percent, and as of February, the U.S. central bank’s preferred gauge – the personal consumption expenditures price index – was up 5 percent from the same month a year ago.
Bostic‘s outlook holds for one more quarter-percentage-point rate rise, which would lift the Fed‘s benchmark overnight interest rate to the 5 percent-5.25 percent target range. The central bank’s rate-setting Federal Open Market Committee will next meet on May 2-3, and the 25-basis-point hike penciled in collectively by officials in March and broadly expected by markets is also generally seen as the stopping point.
Once that prospective final rate rise takes place, the Fed will then be able to hold steady for an extended period and see how the cumulative impact of the many rate increases are affecting the course of the economy, Bostic said. When the policy rate has peaked, “I don’t have us really doing anything but monitoring the economy for the rest of this year and into 2024,” he said.
Bostic is not a voting member of the FOMC this year.
He added that the banking-related financial stress that kicked off in March and nearly derailed the Fed‘s move to hike rates at the end of that month seemed to be easing.
Bank activity in the Atlanta Fed district and the broader economy “seems to be stable and has gotten through this” period of stress. “But you never know when the next shoe might drop, so we’re going to stay diligent,” he said.
Bostic also noted that a pullback by banks and other financial firms will likely take some pressure off the Fed, as reduced credit will probably be a headwind to growth.
“Uncertainty is going to cause bankers themselves to be more cautious and be more circumspect in terms of the loans that they extend. That’s going to do some of the work for us and allow us to not have to raise interest rates as much as we might otherwise,” Bostic said.