Fed can’t be reckless in the way it pushes up interest rates, Bostic says

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Atlanta Fed Chairman Rafael Boustik said on Tuesday that the Federal Reserve should avoid being reckless in the way it raises its benchmark interest rate this year.

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“Uncertainties affect the economic outlook on almost every front, from the pandemic to the war in Ukraine to supply constraints. Monetary policymakers should be mindful of those uncertainties and proceed cautiously in tightening policy,” Bostic said, In an essay published on the website of his regional bank.

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“Therefore, as we return monetary policy to a more neutral stance to bring inflation closer to our 2 per cent target, I plan to proceed with intent and without recklessness,” he said.

Fed Chairman Jerome Powell plans to raise its benchmark rate for the Fed by half a percentage point at the next two FOMC meetings in June and July. The Fed’s benchmark rate will be closer to 2% by August.

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So the focus on future Fed policy moves has already shifted to their September meeting.

Powell has said the Fed will continue raising its policy rate until there is “clear and convincing” evidence that inflation is slowing down.
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Some at the Fed want to maintain the half percentage point growth. Others have suggested slowing rate hikes to a quarter-point.

On Monday, Bostic told reporters that a “break” in September may be justified.

In his essay, Bostic noted that market changes can be rapid, which dramatically changes the outlook. He said it is important that the Fed be prepared and aware.

“Given the very high levels of inflation, some of the cautions I put in here may surprise some. But remember this: firetrucks with sirens also go slow at intersections, lest they cause more trouble. can produce,” he said.

Recent sharp selloff in DJIA shares,

Some market analysts, tied to fears of a global recession, say the Fed will not have to raise rates too much to control inflation.

Yield on 10 Year Treasury Note TMUBMUSD10Y,
Has remained below 3% over the past week.

Krishna Guha, a former Fed employee and now vice president of Evercore ISI, said Bostic’s comments about a pause confirm that recent market volatility and bearish chatter has attracted the Fed’s attention.

“But Bostic is relatively generous compared to the FOMC,” Guha said. “We don’t think his view of the September break should be read as an indication of what the FOMC is thinking at this point in time,” he said.

Bostic is not a voting member of the FOMC this year.

Ino speech monday night, Kansas City Fed Chairman Esther George, a relatively enthusiastic Fed official who is a voter this year, said the Fed is going to start shrinking its balance sheet in June, which is another form of tightening.

He said financial markets are “currently far more volatile” than the last time the Fed shrunk its balance sheet.

George said he expects the Fed to raise rates to 2% by August. After that, “evidence that inflation is clearly declining will inform decisions about further tightening,” she said.

Credit: www.marketwatch.com /

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