(Bloomberg) - Federal Reserve Bank of Atlanta President Raphael Bostic said policymakers need to be cautious not to overtighten monetary policy and risk unnecessary harm to the US labor market.
“Based on current dynamics in the macroeconomy, I feel policy is appropriately restrictive,” Bostic said in remarks prepared for delivery at the South African Reserve Bank’s Biennial Research Conference. “I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.”
Bostic — who is not a voter this year on the central bank’s rate-setting Federal Open Market Committee — has been among the more dovish of US policymakers, suggesting in an Aug. 4 interview with Bloomberg Television he favors keeping interest rates steady to allow past rate hikes to gradually reduce inflation to the 2% target. After aggressive rate increases in 2022, Fed Chair Jerome Powell and his colleagues have slowed the pace this year, and signaled they may be close to wrapping up.
Officials raised their benchmark rate last month to a range of 5.25% to 5.5%, a 22-year high, after skipping a hike at their June meeting. Their most recent projections had one more rate increase penciled in this year.
At the Kansas City Fed’s conference at Jackson Hole, Wyoming, last week, Powell said that rate of inflation remained too high and central bankers were prepared to do more.
“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said.
Bostic said he couldn’t rule out the need for an additional rate hike.
“Should conditions not play out the way I anticipate, and inflation or inflation expectations abruptly reverse course and start climbing, then I would certainly support doing what would be necessary to put the US economy back on a path toward price stability,” he said.
And while urging patience, Bostic also echoed a need for rates to stay higher for longer.
“That does not mean I am for easing policy any time soon,” he said. “Inflation in the United States is still too high. The battle against inflation has seen significant progress. Inflation is well off the very elevated levels we saw in the last year, but it’s essential that it be brought all the way back to our target.”
Bostic cited a number of measures suggesting inflation was already making progress in moving to target, including the Atlanta Fed’s measure of sticky prices, or prices that don’t change often, as well as rental housing prices that are reported in official data with a lag.
Given that, “underlying inflation may well be close to our target already,” Bostic said.
Bostic described the employment market as being in a period of “measured cooling” and noted that revisions could lower past reported payroll gains. Businesses are planning to taper wage increases, he added.
“The job market may be cooling even faster than the headline numbers suggest, as growth in total hours worked has slowed more than growth in employment because of recent increases in part-time work,” Bostic said.
By Steve Matthews
