FX168 Financial News (North America) News Atlanta Federal Reserve Bank Governor Raphael Bostic (Raphael Bostic) said that monetary policy is not as effective in slowing economic growth as in previous cycles, so it is even more necessary to keep interest rates high for a longer period of time to curb inflation.
(Bostic, Source: Bloomberg)
In a virtual discussion with Stanford Graduate School of Business (Stanford Graduate School of Business) students on Thursday (May 23), Bostic said he was happy that inflation had returned to decline after little progress in the January-March quarter, but pointed out that progress is still slow.
The Atlanta Federal Reserve Chairman said, “In the first quarter of 2024, inflation was basically horizontal. “A few recent figures suggest that maybe we have made a breakthrough and inflation continues to return to the 2% trajectory, but very slowly.”
Bostic said that due to the evolution of the economy during the pandemic, people and businesses may not be as sensitive to interest rates.
“As inflation soars, we will obviously have to adjust interest rates and policy interest rates, and anyone with debt is trying to lock in low-cost debt,” Bostic said.
He said that since there is so much debt in the economy to reduce interest rates through refinancing, the influence of the Federal Reserve's main monetary policy instruments has weakened.
“Sensitivity to our policy interest rates — we will impose restrictions and the degree of restraint that we will impose will be greatly reduced.” For these reasons, Bostic said, “I expect this to last much longer than you think.”
According to the minutes of the two-day Federal Open Market Committee (FOMC) meeting released on Wednesday, which will end on May 1, although participants assessed monetary policy as “well-positioned,” many officials mentioned that they are willing to further tighten monetary policy if necessary.
Since July of last year, Federal Reserve officials have kept interest rates in the range of 5.25% to 5.5%, the highest level in 20 years, with the aim of reducing the inflation rate to the central bank's 2% target.
Policymakers have welcomed recent consumer price data. The data showed that in April, a key measure of potential inflation, slowed for the first time in six months. However, some Federal Reserve officials hinted this week that before they are confident to start cutting interest rates, they need to see more evidence that inflation is continuing to fall.
Bostic has the right to vote on this year's monetary policy. He said on Tuesday that he believes the Federal Reserve will start lowering interest rates before the end of this year, but it is unlikely before the fourth quarter.
Federal Reserve Governor Christopher Waller (Christopher Waller) said on Tuesday that he needs to see more good inflation data before he can start cutting interest rates. He added that keeping interest rates stable for “three or four months” will not drag down the economy.
Bostic hinted that once the Federal Reserve starts cutting interest rates, he will be unwilling to reverse policy because this move will bring uncertainty to the economy.
He said on Thursday, “I think one very important goal is to move in only one direction — don't cut interest rates first, then raise interest rates, then — because I think this will cause policy uncertainty.”
The next meeting of the Federal Open Market Committee will be held June 11-12.