By Greg Robb
The Federal Reserve should avoid being reckless in the way it raises its benchmark interest rate this year, said Atlanta Fed President Raphael Bostic on Tuesday.
“Uncertainties shroud the economic outlook on virtually every front, from the pandemic to war in Ukraine to supply constraints. Monetary policy makers must be mindful of those uncertainties and proceed carefully in tightening policy,” Bostic said, in an essay published on his regional bank’s website.
“So as we expeditiously return monetary policy to a more neutral stance to get inflation closer to our 2 percent target, I plan to proceed with intention and without recklessness,” he added.
Fed Chairman Jerome Powell has laid plans for the Fed to raise its benchmark rate by half-a-percentage point at the next two FOMC meetings in June and July. That will get the Fed’s benchmark rate close to 2% by August.
So the focus for future Fed policy moves has already shifted to their September meeting.
Powell has said the Fed will keep raising its policy rate until there is “clear and convincing” evidence that inflation is moving lower.
Some on the Fed appear to want to maintain the half-a-percentage point hike. Others have suggested slowing to a quarter-point rate hike.
On Monday, Bostic told reporters that a “pause” in September might be justified.
In his essay, Bostic said that shifts in the market can happen quickly in ways that dramatically alter the outlook. It is important that the Fed be ready and stay aware, he said.
“Given the very high level of inflation, some might be surprised by my injecting some caution here. But remember this: even firetrucks with sirens blaring slow down at intersections lest they cause further preventable trouble,” he said.
The recent sharp selloff in stocks (DOW:DJIA) (S&P:SPX) tied to fears of a global recession have some market analysts saying the Fed won’t have to raise rates much higher to control inflation.
The yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) has remained below 3% in the past week.
Krishna Guha, a former Fed staffer and now vice chairman of Evercore ISI, said that Bostic’s remarks about a pause confirm that the recent market volatility and the uptick in recession chatter has caught the Fed’s attention.
”But Bostic is relatively dovish… compared with the FOMC as a whole,” Guha said. ”We do not think his musing about a September pause should be read as indicative of what the FOMC is thinking at this juncture,” he said.
Bostic is not a voting member of the FOMC this year.
I n a speech Monday night, Kansas City Fed president Esther George, a relatively hawkish Fed official who is a voter this year, noted that the Fed is going to start reducing its balance sheet in June, which is another form of tightening.
Financial markets are “far more unsettled currently” than the last time the Fed shrank its balance sheet, she noted.
George said she expected the Fed to push rates to 2% by August. After that, “evidence that inflation is clearly decelerating will inform judgments about further tightening,” she added.