Fed’s Bostic sees US rates ‘pause’ in divergence with most policymakers

The president of the Federal Reserve Bank of Atlanta, Raphael Bostic, said in Dublin on Thursday that United States rates should remain on hold for the remainder of this year, putting himself at odds with the chair and most members of the world’s most influential monetary policy committee.

Mr Bostic, who is an alternate member of the rates-setting Federal Open Market Committee, said that it is now time for the committee to “wait and let our policy work” after it increased its main rate by five percentage points since March 2022 to 5-5.25 per cent.

“I don’t see as much urgency to move, as stated by others, including my chair,” said Mr Bostic, referring to the Fed chair, Jerome Powell, as he spoke to reporters in Dublin in advance of making a speech at an Irish Association of Investment Managers dinner on Thursday.

[ Markets shrug off the Fed’s hawkish pause ]

While Mr Bostic said that the Fed may have to increase rates again if inflation expectations “start to move in a difficult way”, he said, on balance, a pause is currently the right approach as there are signs that core US inflation is starting to plateau.

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“Now, I’ve got to convince my colleagues that my approach is right,” he said.

While the Fed held off on raising rates earlier this month for the first time since it started hiking official borrowing costs early last year, Mr Powell said on Thursday that most Fed policymakers expect they will need to raise rates at least twice more by year’s end.

Mr Powell noted that inflation was estimated to have risen 3.9 per cent last month from a year earlier, with the core index, excluding food and energy prices, likely to have risen 4.7 per cent. The Fed’s target is for an inflation rate of 2 per cent.

Mr Bostic said that the Fed cannot keep moving on rates until it hits its 2 per cent target, “because then we know we’ll have gone far further than we might have needed to,” he said.

“You need to be careful not to overshoot because every percentage point of overshooting means that Americans are going to lose jobs that we might not have needed to lose to achieve the goal.”