MNI: Fed's Bostic Pushes Back On Market Hopes Of 2023 Cuts

Atlanta Fed President Raphael Bostic said Wednesday the central bank must remain vigilant in its inflation fight, seeing interest rates on a path to 4%-4.5% by year-end and staying there, pushing back on the notion of rate cuts in 2023.

"We must remain vigilant because this inflation battle is likely still in early days if the projections of my FOMC colleagues are correct," he said. "The strength of labor markets will wane, and economic activity will weaken, which is fundamentally necessary to reduce inflation."

"We should not let the emergence of this weakness deter our push to lower inflation, though. We must reduce the existing demand-supply imbalance and thereby bring down inflation. We need to remain focused on the core mission of putting underlying inflation on a sustained path toward 2%," he said in remarks prepared for a Northwestern University event.

Expecting GDP to grow about 1.25% in the second half of 2022, and about 1% in 2023, he sees the unemployment rate remaining roughly flat through the end of the year.

NO QUICK TURN

Bostic also addressed speculation the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall. "I would say: not so fast," he said. "Be assured that I am not advocating a quick turn toward accommodation. On the contrary."

"I am going to remain purposeful and resolute in my approach to monetary policy," he said, noting the errors of '70s stop-and-go monetary policy. "I take those lessons from the Great Inflation to heart. I am firmly committed to the fight against inflation and will remain purposeful and resolute until the job is done."

Citing studies showing that central bank hiking cycles can take a year or two to slow the underlying rate of inflation, Bostic acknowledged it is possible that the lag in policy affecting inflation may have shortened but suggested he is not entirely convinced.

The Atlanta Fed chief said his baseline outlook is that the central bank can tighten policy to 4% to 4.5% without causing undue dislocation in output and employment. Bostic previously told reporters his baseline view was for a 75 basis point rate hike in November and another 50 in December.