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

2019.

     "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

Atlanta.

     "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: jean.yung@marketnews.com

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