Bostic: Quarter-point US rate increases best to limit risk to economy

WASHINGTON, March 2 (Reuters) – The impact of higher US interest rates on the economy may not seriously “bite” until this spring, arguing for the Federal Reserve to stick with “steady” quarter-point rate hikes, the Atlanta Federal Reserve said -President Raphael Bostic on Thursday.

“I still strongly believe that slow and steady will be the appropriate course of action,” Bostic said in comments to reporters. The cumulative effect of the Fed’s rate hikes “should bite through the spring… Doing it in moderation reduces the likelihood that we will overshoot” and hurt the economy.

But Bostic said he was willing to keep hike rates higher if inflation doesn’t slow, and was still mulling over how recent, stronger-than-expected inflation data might affect Fed policy.

The Fed may be close to a stopping point in rate hikes that raised the target federal funds rate from near zero a year ago to a “restrictive” level of between 4.5% and 4.75% in February, said Bostic, who has none is voters this year about interest rate policy. He has pegged another half a percentage point of hikes as likely needed, but that depends on what upcoming data shows about an economy that continues to beat expectations.

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At this point, he said, Atlanta Fed officials are divided in their views on why the rapid rate hikes so far have not done more to slow consumer and corporate spending, with some arguing that even higher rates may be needed and others believe it is only a matter of time before tightening monetary policy has its usual hold.

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Even the business leaders he advises are bipartisan, convinced demand for their own goods and services is secure but expecting “the shoe will drop” elsewhere in the economy; intend to hire more workers in a tight labor market, but also expect to be able to slow the pace of wage increases.

“We want to be very judicious,” said Bostic. “Keep raising rates for a while longer until we start to see the inflation trend clearly so I’m confident we can get to 2%.”

The Fed is targeting a 2% annual rate of increase for the personal consumption expenditure index, which rose 5.4% annually in January.

Reporting by Howard Schneider Edited by Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

Howard Schneider

Thomson Reuters

Covers the Federal Reserve, Monetary Policy and Economics, University of Maryland and Johns Hopkins University graduate with previous experience as a foreign correspondent, economic reporter and local contributor to the Washington Post.

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