Raphael Bostic, president of the Atlanta Federal Reserve, stated on Saturday that he is prepared to “step away” from three-quarter point rate increases at the December Fed meeting and believes that the target policy rate only needs to increase by one percentage point to combat inflation.
Bostic stated in prepared remarks for delivering at the Southern Economic Association that it’s feasible that 75 to 100 basis points of extra tightening will be necessary if the economy develops as projected. At this rate, the policy rate will be adequate to control inflation for a practical amount of time.
With that, the Fed policy rate would be set between 4.75 and 5%, which is slightly lower than the peak rate anticipated by investors. At the moment, it is set between 3.75% and 4%.
Bostic and several other Fed officials have expressed support for the idea that the Fed will raise prices by half a percentage point at its meeting in December after doing so in three-quarter point intervals at the previous four sessions.
Bostic stated that it is likely the “landing rate” would be higher than he presently thinks given the inflation shocks of the previous year and that he was willing to be flexible in his views about both the proper policy position and the pacing.
However, he noted that the Fed will eventually need to take a break and wait for the economic dynamics to settle, as he believes it might take anywhere between 12 and 24 months for the effects of Fed rate rises to “completely manifest.”
Bostic added that even if rates need to be increased again later, it appears reasonable to be more careful as policy swings more into restrictive terrain.
Bostic added that even if the economy were ever to “weaken significantly,” the Fed should resist the urge to drop rates until inflation is “well enough on track” to reach the Fed’s 2% target.
Bostic said that the general public and financial markets should be aware of the team’s goals and commitment to bringing fundamental inflation back to its target of 2%.
Recent inflation numbers were less than anticipated. The Fed’s target threshold for key price increase measures, however, has continued to be 2 to 3 times higher.
Meanwhile, previously, Susan Collins, president of the Federal Reserve Bank of Boston, stated on Friday that to bring inflation under control, the Fed may need to issue another rate increase of 75 basis points because there is little indication that price pressures are abating.
Collins told CNBC that because the economy is in the stage when purposeful increases—all feasible increases—should be on the board as it is decided what is suitably tight. It’s also vital to note that 75 is still a possibility.
The Fed has increased its policy rate more quickly this year than it has at any point since the 1980s, notably four consecutive increases of 75 basis points, which by the beginning of this month had raised short-term borrowing costs from near zero in March to a range of 3.75%–4%.
To avoid strengthening more than is necessary and causing the economy to enter a recession, Fed Chair Jerome Powell as well as other policymakers have hinted that the central bank may switch to lower rate increases next month.
Nevertheless, he added, rates may ultimately need to rise above the 4.6% that decision-makers believed they would require by the end of the year.
Collins, who casts a vote on the Fed’s interest rates decision in December, said the Fed still has a chance to reduce inflation without seriously harming the economy.
Collins said in remarks introducing a symposium on workplace issues at her bank that she takes a look at the situation right now and is still positive that there is a path to restoring price stability with a slowdown in the labour market that only results in a slight increase in the unemployment rate.