MNI BRIEF: Fed's Bostic Says Long-Term Neutral Rate Has Risen

Federal Reserve Bank of Atlanta President Raphael Bostic said Thursday he thinks the long-term neutral rate is higher than it was before the pandemic and it could be around 3%, but there is great uncertainty.

"We have to say what we think our long run neutral rate is. The last one, I put in 3%," Bostic said at Georgia Tech’s Scheller College of Business, referring to the Fed's last Summary Economic Projections in June. "That's just a rough number. I know it's higher than where it was before, and given some of the dynamics, that's kind of a reasonable thing. But in my building, we have people ranging from 2.5% to 4.5%, right? And so there's lots of diversity on this." The median FOMC long-run neutral view in June was 2.8%.

The Atlanta Fed chief also repeated on Thursday that it may be time to begin lowering interest rates soon but he wants to be sure before pulling that trigger. Bostic said he will want to see confirmation from the monthly jobs report and two inflation reports due before the Fed's September meeting that the economic trends are continuing. (See: MNI POLICY: Fed Increasingly Convinced It Defeated Inflation)