Source: Finance Association
① Bostic said that the cooling of inflation is still progressing slowly; ② therefore, it is even more necessary to keep interest rates high for a longer period of time to curb inflation; ③ he also pointed out that there are almost no signs of trouble in the labor market.
Federal Reserve Bank of Atlanta Governor Raphael Bostic (Raphael Bostic) said on Thursday that monetary policy is not as effective in slowing economic growth as previous cycles, so it is more necessary to keep interest rates high for a longer period of time to curb inflation.
He pointed out that although he is happy that inflation has resumed a downward trend after recovering beyond expectations in Q1, Bostic emphasized that progress is still slow. He said, “We haven't gone through the worrying stage; inflation is still a long way to go back to our target.”
Bostic pointed out that even in the latest consumer price index, the proportion of products that have increased in price by more than 3% or 5% is still higher than the proportion under normal circumstances.
At the same time, Bostic also pointed out that there are few signs of trouble in the labor market.
“Employment growth has been very strong... It tells me that there is still a lot of dynamism in the economy, which reassures me that we are at a higher level of restraint because I don't think we are at risk of falling into a contractionary environment today.” he added.
According to him, due to the evolution of the economy during the pandemic, people and businesses may not be as sensitive to interest rates. And with so much debt in the economy being refunded to lower interest rates, the impact of the Federal Reserve's main monetary policy instruments has weakened.
Insist on raising interest rates later
Bostic 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. On Thursday, he also stressed that he believes the Federal Reserve may need to delay interest rate cuts until the last three months of this year.
This is partly due to some recent feedback from business owners who say they will wait to deploy capital before borrowing costs become more attractive.
“I've actually really accepted this... we might need to be a little more patient and be more certain that inflation is moving towards the Fed's 2% target before considering cutting interest rates.” he said.
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.
The minutes of the Federal Reserve's latest meeting released on Wednesday showed that policymakers' concerns about inflation have intensified. They believe that policy interest rates will need to be maintained at the current level for a longer period than previously anticipated. Officials emphasized that they lacked confidence in easing monetary policy and cutting interest rates. Bostic's position is tougher than his colleagues; he has the right to vote on this year's monetary policy.
Finally, Bostic also 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.
“I think a very important goal is to move in only one direction, not to cut interest rates, then raise interest rates, then cut interest rates, and then raise interest rates, because I think this will cause policy uncertainty.” he said.
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