Federal Reserve Bank of Atlanta President Raphael Bostic said that while there have been some positive recent signs that inflation may be slowing, more work is still needed by policymakers to get interest rates to a restrictive level.
“There are glimmers of hope,” Bostic said in an essay posted on the Atlanta Fed Website Tuesday, citing signs including slowing increases in goods prices. “I will need to see indicators of broad-based easing of inflation.”
The US central bank raised its benchmark interest rate by 75 basis points on Nov. 2 for the fourth straight time, lifting the target range to 3.75% to 4% from near zero in March as it fights to curb the highest inflation in four decades. While Bostic didn’t comment specifically on the December policy meeting, markets broadly expect a half-point hike next month.
Bostic highlighted that he wants to see slowing in the price gains of services as well as goods.
“So far, we haven’t,” he said, adding that the key may be a better balance in the labor market, because service industries are labor intensive. But for now, “the labor market remains tight as openings still far exceed the number of job seekers. That creates upward pressure on wages,” he said.
More Hikes
Data released last week showed consumer prices cooled by more than expected in October, with the consumer price index rising 7.7% from a year earlier versus 8.2% the month before.
Bostic said the goal of monetary policy is to be “sufficiently restrictive to return inflation to our target,” adding that “we are not there now, and so I anticipate that more rate hikes will be needed.”
Bostic noted that the Fed’s policy committee added to its most recent statement a comment that monetary policy works with a lag. He said that the precise lag between policy action and impact on prices is uncertain and that by some estimates it could be “18 months to two years” to bring down inflation.
That means the Fed will need to “calibrate policy today knowing we won’t see its full impact on inflation for months. In those circumstances, we must look to economic signals other than inflation as guideposts along our path.”
Bostic reiterated his view that he doesn’t believe a recession is inevitable. He said inflation was the top priority, in any event.
“If high inflation persists for too long and becomes entrenched in the economy, we know that more prolonged and deeper economic pain will ensue,” Bostic said. “So, while there are risks that our policy actions to tame inflation could induce a recession, that would be preferred to the alternative.”
This article was provided by Bloomberg News.