MNI: Fed's Bostic Wants Rates 5%-5.25%, Hold Well Into 2024

Federal Reserve Bank of Atlanta President Raphael Bostic said Wednesday he sees the need for more rate increases amid high inflation and then likely holding them steady well into next year.

"I think we will need to raise the federal funds rate to between 5 and 5.25% and leave it there until well into 2024," he said in prepared remarks. "This will allow tighter policy to filter through the economy and ultimately bring aggregate supply and aggregate demand into better balance and thus lower inflation."

Bostic's remarks for a longer pause echo those of Boston Fed's President Susan Collins' who Friday said the fed funds rate will remain at a sufficiently restrictive level for perhaps an "extended" period of time.

"We must determine when inflation is irrevocably moving lower," he said. "We’re not there yet."

CONDITIONS FOR REVERSING COURSE

Yet, Bostic also laid out what he will need to see to consider reversing the course of monetary policy.

That includes a narrowing of the gap between labor supply and demand, higher interest rates more decisively affecting aggregate demand, ongoing recovery in aggregate supply, a reduction in the breadth of inflation, and stable inflation expectations, he said.

"Over the past several months, the gap between labor supply and demand has narrowed slightly as employment growth has slowed. Business leaders tell us that, yes, it’s a bit easier to fill vacant positions than it was last summer, but the tight labor market remains a top concern."

But the Atlanta Fed chief said interest rates are still not sufficiently influencing business activity. "I'd need to see tighter money more significantly slow aggregate demand before I’d consider shifting policy," he said.

The breadth of inflation is still high, he said. About half of the goods in the CPI market basket still show inflation rates of 6% or higher, down from upwards of 75% last summer and up from less than 10% before the pandemic, he noted.

(See: MNI INTERVIEW: US Inflation Could Take Many Years To Reach 2%)

"While this is a welcome decline from the historically high proportions of last year, this level is still quite elevated," Bostic said in a message posted to the Atlanta Fed website. "If we are going to get inflation back in the range of our target, the breadth of inflation will have to narrow considerably."