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The president of the Atlanta Federal Reserve said a “significant” slowdown in inflation gives the central bank scope to leave interest rates unchanged in September and keep the Fed on hold until next year.
Raphael Bostic on Tuesday said there’s a growing risk the Fed could overdo it by continuing to raise rates, potentially damaging the economy unnecessarily. He made his remarks in a Zoom roundtable with reporters.
The Fed last week raised a key short-term interest rate for the 11th time in less than a year in a half. That brought the rate up to a top end of 5.5% from near zero in the spring of 2022.
The central bank has been trying to slow inflation without tipping the economy into a recession. Higher borrowing costs typically depress economic growth.
The economy has remained fairly strong, however, despite higher rates and inflation has eased considerably. The rate of inflation slowed to 3% in June from a 40-year high of 9.1% last year, based on the consumer price index.
Other measures show inflation somewhat stickier in the 4%-plus range, more than double the Fed’s 2% target.
Bostic said the Fed would keep rates high and probably not cut them at least until the second half of 2024. A period of higher rates is needed, he said, to make sure the rate of inflation slows toward 2%.
Bostic is not a voting member of the Feds interest-rate setting committee this year. He has been one of the leading voices at the Fed urging more caution now in light of the steep increase in interest rates.
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