Bostic: Idea Of Sep Pause Not Tied To Looming Market Rescue (MarketWatch)

Atlanta Fed President Bostic (’24 voter) tells MarketWatch that his suggestion that the Fed takes a September “pause” should not be construed as a “Fed put.” Bostic stressed that the idea of any sort of “Fed put” was never a factor in his thinking. “I think it’s a good tale on some level for story books, but it’s not driving how I’m thinking about policy,” he said.

• Bostic noted that a pause might be a good idea because the market’s response to Fed hikes “was far stronger than what we’ve historically seen.” He is of the view that this lifts the odds that the wider economy will respond quickly to Fed tightening. “I want to make sure I truly understand the pace of change that’s associated with our policy response,” Bostic said.
• Bostic also suggested that by September some of the questions surrounding the health of the economy could be answered and the labor market imbalances could moderate, leading to a “pretty significant reduction in inflation.” He looks for PCE to fall to a little over 4% in Y/Y terms come the end of ’22.
• Bostic reaffirmed his preference for rates to move to 2.00%-2.50% around the end of ‘22. He went on to highlight that if such a move doesn’t result in inflation moving down in a significant way, he would be “fully comfortable” when it comes to moving into restrictive policy territory.
• Bostic said some of his contacts are reporting the “first signs” of moderating demand, centred on households that had less wealth and savings pre-pandemic.
• “There is a lot of momentum in the economy. The economy can slow down for quite some time before it would slip into a more recessionary posture. I understand the concern. I don’t think we’re quite there yet.”
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