On Saturday, Raphael Bostic, the Atlanta Federal Reserve President said he is ready to move away from the 75 basis point hikes which have emerged from the last four Federal Open Market Committee meetings, toward smaller increases, noting the Fed’s target policy rate may be able to tackle inflation with only another one point rise.
In remarks presented at the Southern Economic Association, Bostic said, “If the economy proceeds as I expect, I believe that 75 to 100 basis points of additional tightening will be warranted. I believe this level of the policy rate will be sufficient to rein in inflation over a reasonable time horizon.”
That would put the Fed policy rate at between 4.75% and 5%, which is a touch below the peak rate currently expected by analysts. The rate currently sits at 3.75% to 4%.
After four consecutive 75 basis point rate hikes, it is expected the Fed will produce a 50 basis point hike at its December meeting. It is a view which has been endorsed by Bostic as well as a number of other policymakers in recent remarks.
Bostic acknowledges the “landing rate” might go higher than he presently sees as adequate, noting he would remain “flexible in my thinking about both the appropriate policy stance and the pacing.”
He did note however that sooner or later, the Fed would have to pause its tightening and, “let the economic dynamics play out,” since he feels any Fed rate increases will take 12 to 24 months before the effects are “fully realized.”
He noted, “Being more cautious as policy moves deeper into restrictive territory seems prudent,” even if it means they will subsequently have to raise rates a little further later on.
However he noted under no circumstances should the Fed cut rates before inflation is “well on track” to drop towards the Fed’s 2% target rate, even in the event the economy began to, “weaken appreciably.”
He added, “We want the public and markets to clearly understand our aims, and the fact that we are going to be unwavering in the pursuit to bring underlying inflation back toward our 2% objective.”
Although recent inflation data has been below analysts expectations, key price measures have still come in at two to three times the Fed’s target level.
