Fed's Bostic: Comfortable With Dec Hike if Infl Picks Up

--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

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