MNI BRIEF: Bostic Warns Of Fed Over-Tightening

Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday there is reason to expect continuing declines in inflation and warned the central bank could over-tighten.

"There is some risk of us overtightening and so we've just got to have that in mind," he told reporters on a call. "If we can be appropriately cautious, I think we have the opportunity to minimize the damage that we see on the employment side."

"That's not to say there won't be damage and unemployment might rise as we go into next year but I'd like if at all possible to make sure we don't go to too much and do more than necessary to get us to that 2% target," he said.

Bostic "probably would have grudgingly gone along with" the the Fed's decision last week to raise the Fed's policy rate a quarter of a percentage point to a target range of 5.25%-5.50%. Fed policymakers in June signaled they expect to need to lift rates further to above 5.5% before year's end, but Bostic said he preferred holding still. (See: MNI INTERVIEW: Fed's Bostic Wants Rates On Hold Until End 2024)

Asked Tuesday if he would potentially support another rate hike in September, Bostic emphasized data and added: "The further you get away from my ideal point, I would think you have to think about it. The decision gets harder on some level."

Bostic also repeated his preference for a long pause. "My baseline outlook doesn't contemplate any cuts until the second half of next year at the earliest. My outlook has inflation falling pretty slowly through 2024 such that I think there will still be some value in having a restrictive position."