Raphel Bostic, the president of Atlanta Fed, stated on Thursday that he would continue to be open to the idea that if economic data come in higher than expected, there may be a case for higher interest rates in the coming months.
Bostic mentioned the recent inflation and jobs in a call with reporters on Thursday afternoon. He also noted that updated reads on each would release before the Fed’s policy meeting on March 21st and 22nd.
Bostic said that the fact that consumer spending is high and the labor market is still tight suggests that the economy’s strength may be slightly more than people believe, which means they might need to take additional action.
These remarks follow a report Bostic released on Wednesday that stated that the Fed should increase its policy rate by 50 basis points to a range of 5% to 5.25% and maintain it there until at least the middle of 2024. Rates currently range from 4.5% to 4.75%.
Bostic said he expects the Fed to be in a position by mid-to-late summer to halt interest rate hikes. He added that if the central bank stops raising rates, it should keep them there.
Raphel Bostic favored advancing in quarter-point increments, despite stating that he wouldn’t commit to a policy rate until the meeting.
It takes time for the economy to adjust to increased interest rates. Except for rat-sensitive industries like housing, the Fed’s rate increases haven’t impacted the economy thus far.
In another statement, Fed Governor Chris Waller expressed a concern that the Fed is making the necessary strides to restrain economic growth and lower inflation. Waller added that if this thread of positive data continues, the Fed may need to raise rates more than expected. He cited high inflation reading, beneficial January jobs reports, and retail sales figures.
In a virtual conference at the Mid-Size Bank Coalition of America, Waller said he would endorse raising the target range for the federal funds rate a couple more times to projected terminal rates between 5.1% and 5.4%.
Waller added that if job growth drops to a level coherent with the downward trend seen late last year and CPI inflation pulls back significantly from the January numbers and resumes its downward path.
However, if those data reports continue to come in too hot, the policy goal range would need to be expanded this year to ensure that they don’t lose the pace that was in place before the statistics for January were released.
According to Waller, recent data indicate that consumer spending isn’t slowing down, whereas inflation is not dropping as quickly as expected. He added that bringing down inflation depends on reducing demand and weakening the economy, but recent retail sales and spending data indicate that progress may have stagnated in this area.
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In addition, Waller claimed that an overly tight labor market makes it more difficult for the Fed to control inflation since rising wages may be keeping inflation high.
According to Waller, although inflation has declined since the middle of last year, the most recent figures show that they haven’t advanced as much as expected. The effort to bring inflation down to 2% will be slower and take longer than many had anticipated.
After Raphael Bostic said he is open to seeking a higher rates peak, it gave the markets confidence to rally. Markets took in contradictory reports on Thursday but eventually overcame concerns about rising rates to launch a late comeback.
The U.S. Labor Department announced early that labor costs increased by 3.2% in the fourth quarter. Weekly unemployment claims decreased by 2,000 to 190,000, which fell short of the forecast of 195,000. The employment market appeared strong, which was surprising. It could lead the Federal Reserve to raise interest rates when it meets later this month. The news caused markets to open lower.
Bostic stated that his preferred strategy is to advance slowly and steadily, adding that he is still in the quarter-point move pace. Bostic also said he supports smaller and more gradual rate hikes, reducing the concern of investors. His remarks assisted in Thursday’s market turnaround.
Due to an 11.5% increase in Salesforce, the S&P 500 gained 0.76%, the Nasdaq Composite gained 0.73%, and the Dow gained 1.05%. The S&P500 is on shaky ground despite the rise. The index has been circling its 200-day moving average, which can be used to gauge an index or stock’s health. Fears in the market could lead to additional selling if the s&P falls below that level. But every significant index is expected to have a fruitful week.
The remarks from Atlanta Fed president Raphel Bostic and Fed Governor Christopher Waller presented a crucial query for the next stage of the Fed’s campaign to reduce inflation.
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