Atlanta Federal Reserve Chairman Raphael Bostic on Tuesday expressed concern about the impact rate hikes could have on the US economy’s recovery, saying the central bank should not act so quickly that it stalls growth.
Bostic, in a CNBC interview, did not commit to the pace at which the Fed should hike interest rates. Instead, he said policymakers should be measured in their approach and monitor how what they are doing is affecting conditions.
“I think I’m in the same space philosophically as my peers,” he told CNBC’s Sara Eisen in a Closing Bell interview. “I think it’s really important that we go neutral and do that quickly.”
“Neutral” is defined as the rate at which the economy runs on its own, at rates that neither stimulate nor constrain growth. Bostic said the rate could be as low as 1.75%. This puts it close to the median of the Fed’s “dot plot” of each member’s forecasts released each quarter.
“I’m really aiming to see one and three quarters by the end of the year, but it could be slower depending on how the economy develops and we’re seeing a bigger slowdown than I’m seeing in my base model,” he said. “That’s one reason I don’t really want to explain that we want to go way beyond our neutral position because that may be more hikes than are warranted given the nature of the economic environment.”
This contrasts with some other members of the Federal Open Market Committee.
On Monday, St. Louis President James Bullard said he saw the fed funds rate, which serves as a benchmark for many consumer debt securities, rise to 3.5%. He said the Fed must move beyond neutrality if it has any hope of taming inflation, which is running at its fastest pace in more than 40 years.
But Bostic said the Fed “has to be careful as we move forward.” Inflation could peak, he said, although he noted that real incomes adjusted for the cost of living have fallen.
“We need to get off zero, I think zero is lower than we should be at the moment,” he said. “But at the same time we just have to be careful.”
Market prices relate to rate hikes that would take the benchmark rate to 2.5% and the Fed would eventually rise to around 3.2% before cutting rates in late 2024.
The Atlanta Fed is tracking GDP growth of just 1.3% in the first quarter, although Bostic said he expects an annual pace of about 3% in 2022.
“My goal is for there to be no recession while I’m in this chair and I’m just going to do whatever it takes to make that happen,” he said.