MNI: Fed's Bostic Confident Inflation Will Keep Falling
MNI (WASHINGTON) - Federal Reserve Bank of Atlanta President Raphael Bostic said Monday he remains confident inflation is slowing but is uncertain how restrictive monetary policy needs to be.
He voiced no opinion on whether the FOMC should cut interest rates again at the December meeting, though he said he supported the two cuts thus far that brought the Fed's benchmark rate 75 bps lower than its Covid-era peak. Futures traders are split between another 25 bp cut or no reduction this month.
"I voted for both moves because I believe inflation remains on a path, albeit a bumpy one, toward the Committee's objective of 2%," he wrote in an essay posted on the Atlanta Fed website. "The risks to achieving the Committee's dual mandates of maximum employment and price stability have shifted such that they are roughly in balance, so we likewise should begin shifting monetary policy toward a stance that neither stimulates nor restrains economic activity."
That path to 2% inflation looks sustainable despite data showing core PCE inflation is stubbornly hovering around 2.6%-2.7%, Bostic said.
INFLATION ON TRACK
Economic growth has been stronger than expected in recent quarters, but it's cooling and Bostic said he sees no sign of economic activity sparking inflationary pressure. Inflation expectations have also remained stable, he said.
Housing prices have been a major contributor to elevated inflation, but a softening in market rents over the past 18 months should eventually filter through to the official statistics and lead to lower readings, Bostic said.
"Weighing the totality of the data, I do not view the recent bumpiness as a sign that progress toward price stability has completely stalled," he said. "My base case on inflation remains that we are on track to reach the 2% objective."
The labor market also appears to be stable "at or around maximum employment," Bostic said.
HOW RESTRICTIVE?
Monthly payrolls growth this year through October has averaged 170,000 jobs, lower than the three previous years but still stronger than in 2019, before the pandemic, he noted.
Falling job vacancies also suggest the labor market is cooling "in a largely orderly fashion in the face of higher interest rates, a perspective we also hear from our business contacts," he said.
He pledged to watch the labor market carefully and continue to probe the level of restrictiveness of monetary policy next year.
"If conditions in the labor market are in fact worse than my Committee colleagues and I thought a few months ago, then that probably bolsters the case for continuing to remove policy restrictiveness, and perhaps argues that we should do so more aggressively," he said.
"Monetary policymakers have a great deal to ponder," he said. "How restrictive is monetary policy? How restrictive does it need to be to keep inflation declining toward 2 percent? On the flip side, how quickly and by how much do we need to lower the federal funds rate to ensure we don't seriously damage labor markets and inflict undue pain on the American people?" (See: MNI INTERVIEW: Fed Closer To Slowing Rate Cut Pace - Kaplan)