Atlanta – It may be “understandable” for the Federal Reserve to halt further interest rate hikes after the expected half-point rise in the next two months as the central bank assesses the impact on inflation and the economy, Atlanta Fed President Rafael Bostick said Monday.
“As you go through the summer … I think a lot will depend on the ground dynamics we’re starting to see,” Bostick said, referring to both the Fed’s attempt to contain inflation and the impact of high interest rates on the economy.
“I think a break in September might make sense,” Bostick said.
Bostic’s comments are still the most clear suggestion that the Fed may see significant progress on inflation – or a weakening of the economy – to stop its rate hikes in September to take stock.
Investors expect the Fed to continue raising rates this year, keeping the federal funds rate between 2.75 and 3% by the end of the year. Some Bostick colleagues have called for a more aggressive push to keep the rate at 3.5%, which would include a half-point increase in all remaining Fed meetings for the year.
Bostick says he expects a shallow move by the end of 2022 with funding ending in the range of 2 to 2.5%.
Despite the risks, the central bank could be more aggressive, saying “I am optimistic and I assume inflation will definitely start to go down” by then, Bostick said.
Nevertheless, there is growing concern about the global growth slowdown and how resilient the US economy will be to rising rates, falling equity prices and other adjustments. Bostick said he expected, for example, that the impact of higher borrowing costs could accelerate in the coming weeks as potential buyers set prices outside the housing market due to rising mortgage rates, and families and firms slowed purchases outside of caution on the economic outlook.
The challenge, Bostick said, is to walk into the “knife-edge” rate hike so that a recession is created and still be done enough to prevent price increases.
The economy’s response to the high rate is “going to accelerate over the next few months,” Bostick said. “If we don’t stay in it, there is a risk that we will move beyond the point where these markets have found a balance.”
(Editing by Chris Ridge and Leslie Adler Reporting by Howard Snyder)