MNI: Fed's Bostic Sees Continued Disinflation, Slower Growth

Federal Reserve Bank of Atlanta President Raphael Bostic Wednesday said he expects a continued fall in inflation, in part because economic activity will slow in the coming months because of restrictive monetary policy and tighter financial conditions.

"Evidence has continued to accumulate suggesting that tighter monetary policy is biting harder into economic activity. Wage growth is also slowing," Bostic said.

The Commerce Department earlier Wednesday revised up its third quarter real GDP estimate to a 5.2% annualized pace but Bostic doesn't expect that pace to continue. "Based on the totality of the evidence I’ve presented, I simply don’t think that kind of blockbuster expansion is durable given the current restrictive stance of monetary policy in combination with tight financial conditions." (See: MNI POLICY: Fed Likely Done Hiking, Focused On Length Of Hold)

"That said, inflation remains above 3%. Our objective is 2%, as measured by the PCE price index, so we still have a ways to go," he wrote in a new essay. "As I’ve emphasized, the path to 2% will be bumpy, as evidenced by the fluctuating monthly inflation prints in recent months. But we’ll get there."

CONTINUED DISINFLATION

Bostic, who has wanted rates on hold for months, said he is sensing greater clarity on a few important currents. "One is the direction of inflation. There’s no question the rate of inflation has slowed materially over the past year-plus, and thus far we have avoided a disruptive surge in unemployment that often accompanies a steep slowdown in price increases."

Bostic said Atlanta Fed staff is forecasting inflation will ease to 2.5% by the end of 2024 and closer to 2% by the end of 2025.

Research and input from business leaders also tell the Atlanta Fed chief the downward trajectory of inflation will likely continue. "Our intelligence leads me to believe economic activity will slow in the coming months, in part because restrictive monetary policy and tighter financial conditions are creating greater restraint on economic activity," he said.

The Atlanta Fed's business contacts are reporting companies’ ability to pass on higher prices to consumers is becoming more limited. "Pricing power is eroding for providers of business and consumer services. That’s significant because price increases have been far more persistent for services than for goods."