Fed’s Bostic expresses caution about the pace of interest rate hikes

Atlanta Federal Reserve President Raphael Bostic on Tuesday expressed concern about the impact that rate hikes could have on the U.S. economic recovery, saying the central bank should not move so fast that it stifles growth.

Bostic did not commit in a CNBC interview to what pace the Fed should take to raise benchmark interest rates. Instead, he said politicians should be measured in their approach and see how what they do affects conditions.

“I think I’m in the same areas as my colleagues philosophically,” he told CNBC’s Sara Eisen in a “Closing Bell” interview. “I think it’s really important that we get to neutral and do it quickly.”

“Neutral” is considered the rate at which the economy runs by itself at rates that neither increase nor limit growth. Bostic said the neutral rate could be between 2% and 2.5% and the fund rate could be as low as 1.75% by the end of 2022. That places him close to the median of the Fed’s “dot plot” of individual members’ projections released each. quarter.

“I’ve really made us look at one and three quarters before the end of the year, but it may be slower depending on how the economy develops and we see a bigger weakening than I see in my base model,” he said. . “This is one of the reasons why I am reluctant to really declare that we want to go far beyond our neutral place because it may be more increases than is justified given the economic environment.”

This contrasts with some of the other members of the Federal Open Market Committee.

On Monday, St. Louis President James Bullard that he sees the Fed funds rate, which serves as the benchmark for many consumer debt instruments, rise to 3.5%. He said the Fed needs to go beyond neutral if it hopes to tame inflation at the fastest pace in more than 40 years.

But Bostic said the Fed “needs to be careful as we move forward.” Inflation could peak, he said, although he noted that real income adjusted for the cost of living has fallen.

“We have to get away from zero, I think zero is lower than we should be right now,” he said. “But at the same time, we just have to be careful.”

Market prices are for rate hikes that will bring the fund rate to 2.5% and the Fed will eventually raise to around 3.2% before lowering interest rates by the end of 2024.

The Atlanta Fed is following first-quarter GDP growth of just 1.3%, though Bostic said he expects the annual pace in 2022 to be around 3%.

“My goal is that there will not be a recession while I am sitting in this chair and I will just do everything I can to make it come true,” he said.

Correction: Bostic said the neutral interest rate is between 2-2.5% and the Fed Funds rate can be as low as 1.75%. An earlier version erred in his position on the neutral course.

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