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China Bond Sales in Hong Kong Boosts City's Status: Journal

--Projects Strong Growth, Pick-Up in Inflation to End Year
--Storms May Subtract 1 Percentage Point from 3Q GDP Growth
By Jean Yung
     WASHINGTON (MNI) - Atlanta Federal Reserve Bank President Raphael Bostic
told reporters ahead of a Tuesday speech that he would feel comfortable nudging
interest rates higher in December if data matches his expectations for economic
growth and a pickup in inflation. 
     "I am at this point feeling pretty comfortable about the idea that we will
be looking to move rates come December," he said on a call with news wire
reporters Monday. 
     He added data will guide his decision, but that he expects "we'll work
through the muddle of the hurricane data and continue to see strong signs of
economic growth with a pickup in inflation, then I'm going to be comfortable
with the idea that the move should be made."
     An exceptionally strong hurricane season could subtract 1 percentage point
from third quarter GDP growth but rebuilding efforts should make up for that in
the fourth quarter, he said. Meanwhile, pace of job creation remains strong and
more prime-age people are either working or looking for work. 
     Bostic, who has a vote on rates next year on the Federal Open Market
Committee, said he "takes seriously" the continued shortfall of inflation from
the Fed's 2% goal.  
     "If the inflation rate runs below a central bank's target for an extended
period of time, it is difficult for me to conclude that monetary policy is
overly easy," he said in his prepared remarks.  
     That said, the fact that monetary policy is not currently too easy does not
preclude policy adjustments in the future, Bostic said. 
     Economists at the Atlanta Fed forecast continued strength in the economy
and progress toward the FOMC's inflation objective through the end of this year
and next. 
     "I think clear evidence of this path could certainly be consistent with an
additional rate hike this year," Bostic wrote. 
     Asked by MNI what gives him confidence that inflation will rise, Bostic
pointed to a productive pickup in the labor force participation rate as well as
information relayed by business contacts that they are seeing an uptick in wage
and pricing pressures. 
     "When we think about the segments of the population that are reentering the
workforce, that does suggest to me that the economy is really working out the
slack that has existed and will continue to do so over the next few months and
the next couple of years," Bostic said. 
     "That's one thing that gives me some optimism about the pace of inflation."
 
     Additionally, sources across industries including food, nursing and health
care are also "telling us that they're starting to see far more pressure in
terms of from a wage perspective and a pricing perspective," Bostic said.  
     As for the reasons that underlie weak inflation both in the United States
and abroad, "the book is just being written," though he is "skeptical" that it
can be attributed to technological advances or increasing competitive pressures,
Bostic said.  
     He said he has yet to change his own forecast on the longer run equilibrium
interest rate for the same reasons.  
     "I am mindful that from an inflation perspective we undershot our target
for quite some time, and I have said in many contexts that that's something I'm
really paying attention to. If we don't start to see a turnaround in that space
it will shape and reshape my view on what the appropriate path of policy should
be."
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]