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MNI POLICY: Fed Bostic: May Revise Up Rates Path; Data Strong

By Jean Yung
     WASHINGTON (MNI) - Federal Reserve Bank of Atlanta President Raphael Bostic
on Friday said he may turn more hawkish in light of much stronger growth and
jobs data than he had expected earlier in the year.
     The surprising strength of incoming data highlights the need for the Fed to
get to a neutral policy stance, said Bostic, who has voted to raise interest
rates three times this year and previously said no more hikes were needed until
     "The central question in my mind is whether the apparent strength in GDP
and job growth is a signal that I have materially underestimated the underlying
momentum of aggregate demand," he said in remarks prepared for a conference in
     "If that's the case, the potential for overheating would require a higher
path for rates than what I had been thinking."
     However, Bostic noted that business leaders in his district reported that
they have not materially revised their outlooks for this year and next, despite
slightly higher demand than expected. Neither have they changed plans for
capital investment spending, he said, which bucks expectations out of economic
models and cannot be entirely explained away by uncertainty over trade policy.
     "I get the sense that business leaders have become inured to the seemingly
endless string of day-to-day fluctuations in the business environment. So much
so, that it is dampening their reactions to good news as well," he said.
     Similarly, consumer spending, while rising, has not been on big ticket
items like autos or appliances, and the savings rate remains high.
     Meanwhile, reports that businesses are passing on cost increases are more
widespread, and support his expectation that inflation will continue to run near
2%, Bostic said.
     "Current conditions suggest, to me, that we ought to get to a policy stance
where our foot is neither on the gas pedal -- what we call an accommodative
policy -- nor on the brakes -- what we call a restrictive policy. Such a neutral
policy position would allow the economy to stand on its own."
--MNI Washington Bureau; +1 202-371-2121; email:

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