Atlanta Fed's Bostic/CNBC: Fed Should 'Wait And See' on Infl

     WASHINGTON (MNI) - Atlanta Federal Reserve Bank President Raphael Bostic

said Wednesday the Fed should wait for more evidence that inflation is rising in

response to tighter labor market conditions before moving again on monetary

policy.

     "If we don't see that kind of inflation, my view is that we should try to

be somewhat more hesitant in moving stridently in any direction," Bostic said in

an interview with CNBC, one of his first since taking the helm of the Atlanta

Fed in June.

     "Let's wait and see, and make sure we understand" what inflation is doing,

he said.

     Bostic, who will vote next year on the policymaking Federal Open Market

Committee, said "I actually am worried about the inflation numbers." 

     Inflation, which has been undershooting the Fed's 2% target for most of

this economic recovery, fell in early months of this year. This has some

policymakers questioning whether there is still sustained upward movement like

last year, which led the FOMC to raise rates three times since December.

     "The labor market is performing extremely strongly; confidence is at a good

level; we're starting to see movement in consumer spending on the retail numbers

which have come out recently," he said, "but it has not turned into a sustained

level of inflation that all of our economic models say should exist."

     There's not a good explanation for why inflation is slow to react to

tighter labor markets, if it is reacting at all. 

     "Right now, we don't have a single model that explains why the economy is

not performing the way it should be -- or the way we would expect it to be given

the signals in the labor market," Bostic said.

     The new Fed president also said he was worried about the disconnect between

the data on consumer confidence -- "it's as high as it usually is during huge

economic booms" -- and actual spending. "We're not seeing behavior on the part

of consumers in terms of their spending," he said. "We're not seeing investment

by businesses."

     Some of this may be because of lingering psychological scars from the Great

Recession. "Part of where we need to get to is people see the future in a much

more optimistic way," he said.

     Still Bostic sounded confident on economic growth going forward. The

Atlanta Fed GDPNow estimate for the third quarter is 3.7%, he pointed out. "Our

models are saying the economy is looking to be much stronger in the second

half."

--MNI Washington Bureau;tel: +1 202 371-2121; email: karen.mracek@marketnews.com

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