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Fed Atlanta head urges slower rate hikes to near 5%

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US Federal Reserve Bank of Atlanta President Raphael Bostic said he favors slowing the pace of interest rate increases, with no more than 1 percentage point more of hikes, to try to ensure the US economy has a soft landing.

“If the economy proceeds as I expect, I believe that 75 to 100 basis points of additional tightening will be warranted,” Bostic said in prepared remarks for a speech in Fort Lauderdale, Florida, on Saturday. “It’s clear that more is needed, and I believe this level of the policy rate will be sufficient to rein in inflation over a reasonable time horizon.”

Bostic’s plan would shift away from 75 basis-point hikes and continue to raise rates to as much as 4.75 to 5 percent over the next several meetings, which he described as a “moderately restrictive landing rate.”

Photo: Reuters

The Fed should go on hold for an extended period to continue to put downward pressure on prices, he said.

Fed officials lifted interest rates by 75 basis points for the fourth straight time on Nov. 2, bringing the target on the benchmark rate to a range of 3.75 to 4 percent.

Several policymakers have signaled they might consider a 50 basis-point increase when they meet in the middle of next month, depending on what happens with the economy.

Photo: Reuters

“In terms of pacing, assuming the economy evolves as I expect in the coming weeks, I would be comfortable starting the move away from 75 basis-point increases at the next meeting,” Bostic told the Southern Economic Association’s annual meeting.

Bostic’s view of about 4.75 to 5 percent as a peak rate is less aggressive than some of his more hawkish colleagues.

St Louis Fed President James Bullard on Thursday called for rates of at least 5 to 5.25 percent.

While Bostic repeated that there are “glimmers of hope” that supply disruptions are easing, he said inflation was a “mixed bag” and there was still more work needed to battle price pressures.

“My baseline outlook is that the macroeconomy will be strong enough that we can tighten policy to that point without causing undue dislocation in output and employment,” Bostic said.

“I do not think we should continue raising rates until the inflation level has gotten down to 2 percent. Because of the lag dynamics I discussed earlier, this would guarantee an overshoot and a deep recession,” he said.

Bostic said once policy reaches a sufficiently restrictive level, he envisions a lengthy pause in rates rather than a quick reversal, to ensure that inflation did not revive in a way similar to the experience of the 1970s.

He called for policymakers to “remain purposeful and resolute” until inflation was brought down.

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