"I am firmly in the quarter-point camp when it comes to rate hike pace and policy should begin to bite in the spring," Bostic said in a livestreamed speech. "It is appropriate to be cautious so that the Fed does enough to control inflation but does not do more than we need to."
Bostic’s comments came amid growing debate among policy-makers as well as economists on the efficacy of the Fed’s yearlong rate hikes that have produced less than a desired impact on inflation.
To clamp down on runaway price growth, the Fed added 450 basis points to interest rates since March last year via eight hikes. Prior to that, rates stood at nearly zero after the global outbreak of the novel coronavirus in 2020.
The Fed’s first post-COVID hike was a 25-basis point increase in March last year. It then moved up with a 50-basis point increase in May. After that it executed four back-to-back jumbo-sized hikes of 75 basis points from June through November. Since then, it has returned to a more modest 50-basis point increase in December and a 25-basis point hike in February.
The Personal Consumption Expenditures Index, a US inflation indicator closely followed by the Fed, grew 5.4% in the year to January, beating forecasts for the month and underscoring the central bank’s tough fight against inflation.
The Consumer Price Index, a broader gauge of inflation, stood at a four-decade high of 9.1% for the year to June. It has moderated since to an annualized growth of 6.4% in January but remains well above the Fed’s target of just 2% per year.
Rate expectations for the Fed’s March 22 policy meeting, monitored by foreign exchange traders, remain at 25 basis points, though that could change with the increasing calls for tighter policing from the central bank’s hawks.
"There is a debate going on about how much influence monetary policy has in the current economy," Bostic said. "I have seen some attenuation of inflation, but the Fed needs to remain resolute in fighting inflation. The Fed may have to do more given high inflation. Risks are now roughly balanced in my opinion."
Bostic said business executives have reported strong demand for goods and services, saying concerns were more macroeconomic-related than specific to their firms.
"Businesses say they are expecting to ratchet down the pace of wage increases, but still plan to add workers," he said. "We will need to have some kind of slowdown in the labor market, but not a catastrophic one."
While policy-makers over the world typically celebrate on seeing good jobs numbers, the Fed is in a different predicament. The central bank wishes to see an easing of conditions that are a little "too good" now for the economy’s own good — in this case, unemployment at more than 50-year lows and average monthly wages that have grown without stop since March 2021.
Such job security and earnings have cushioned many Americans from the worst price pressures since the 1980s and encouraged them to continue spending, further feeding inflation.
Economists say monthly jobs numbers need to grow meaningfully below expectations to create some ding at least in employment and wage security which the Fed suggests are its biggest two headaches now in fighting inflation.