Why Bostic wants rates to go higher

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The federal funds target should be raised to a neutral level, Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday.

“Given the current strength of the economy and that retail prices are already ‘on target,’ I supported the 25 basis point increase in the federal funds target range to 2 to 2 ¼ percent at the September FOMC meeting,” Bostic said in a speech in Baton Rouge, La., according to prepared text of his remarks released by the Fed. “And, unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate.”

He noted, in his view, monetary policy remains accommodative.

Although, estimates of neutral are uncertain, he added, “my assessment is that we are still a few rate hikes away. At that point, after our policy foot is off the gas, but not on the brake, I will look to see if consumers and businesses continue to act in ways that do not suggest a buildup of excesses. If that continues, it will give me confidence that the economy is on a sustainable path.”

Acknowledging the risks of moving too quickly or too slowly, Bostic said, “My thinking will be informed by the evolution of the incoming data and from what I’m able to glean from my business contacts. And while I wrestle with that choice, one thing seems clear: there is little reason to keep our foot on the gas pedal.”

Turning to labor, Bostic noted, "the key question isn’t whether the high-pressure economy brings new people from disadvantaged groups into the labor market. Rather, the right question is whether these benefits are durable in the face of the recession that appears to inevitably follow."

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Monetary policy Raphael Bostic Federal Reserve Federal Reserve Bank of Atlanta FOMC
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