In the Fed’s fight against inflation, Bostick wants to avoid ‘recklessness’

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As the Federal Reserve intensifies its fight against 40-year high inflation, which is expected to be a string of major interest rate hikes, a US central banker has injected a cautionary note, warning that head-raising rate hikes “create significant economic displacement.” Can “”

In an article published on Tuesday, Rafael Bostick, president of the Atlanta Fed, said he supports a rapid return to monetary policy to reduce inflation to a more “neutral” position, which is currently more than three times the Fed’s 2% target.

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In doing so, he said, “I plan to move forward with purpose and recklessly.”

He writes that monetary policymakers must be “aware” of the uncertain effects of the epidemic, the war in Ukraine and the economic constraints on supply, and “proceed with caution in tightening policy.”

Earlier this month, the Fed raised its target for the overnight bank-to-bank lending rate by half a percentage point to 0.75% -1%, and Fed Chair Jerome Powell said most policymakers supported two more such rate hikes in June. And July.

Fed policymakers underestimate Bostick’s comments as they think about their next steps in the face of rising global recession risks and how workers and families will react to the growing global recession risk, including how to deal with workers and families in an economy permanently affected by the epidemic. .

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On Monday, Bostick said he wanted to stop further rate hikes at the Fed’s September meeting to give it time to assess the impact of austerity measures on the economy and inflation.

Wednesday’s release of the minutes of the Fed’s May meeting could show just how widely that approach has been conducted and what other options are under consideration.

Since the May meeting, several Fed policymakers have said they would seek to slow the pace of inflation after the initial eruption of austerity, until inflation shows signs of cooling.

Meanwhile, Loretta Mester, president of the Cleveland Fed, said she would be more aggressive at the time if inflation did not co-operate.

At least one policymaker, James Bullard, president of the St. Louis Fed, wants to raise interest rates to 3.5% by the end of the year, which would require a half-point increase in the remaining five Fed meetings this year.

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Krishna Guha of Everco’s ISI says the best possible Fed policy guide is Powell himself, who said earlier this month that he wants to “push” the rate hike until there is a “clear and credible” reduction in inflation. “The high results-oriented benchmarks are unlikely to be met in September, with the economy missing a sharp downturn, although that meeting could be significant enough to allow the Fed to rise from 50bp to 25bp,” Guha, a former New York Fed communications chief, wrote.

The real estate market may already be providing a signal. Data from the Commerce Department on Tuesday showed that sales of new U.S. single-family homes fell to a two-year low in April, as higher mortgage rates beat demand compared to a nearly 20% -year-per-year home price increase that failed. Stem

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Although the Fed has raised interest rates by only 0.75 percentage points since March, policymakers have spoken of tougher policies since last fall, with lenders raising home loan rates by about 2 percentage points this year in anticipation of the Fed’s move.

Fed policymakers want to see similar coolness in more parts of the economy, even as they hope to avoid the kind of sharp recession that could trigger a recession.

Bostick says other changes could happen on the train as well. The participation of the labor force, which fell during the epidemic, has increased, limiting what might otherwise be inflationary wages. Families sitting on trillions of extra savings are starting to save less and use more credit cards, a potential early sign of spending cuts ahead.

But in a world where supply constraints predominate, as Kansas City Fed President Ether George noted on Monday, policymakers aren’t sure how fast borrowing costs will bite demand. And it is certain that there could be a debate up front which would tell how high and how far the rate of increase goes in the end. (Reporting by Ann Safi; Editing by Leslie Adler)