Economic Slowdown and Interest Rates
Discussing the necessary policy response, Bostic emphasized a "wait and see" approach to gauge the slowdown in the economy due to policy actions taken. He added that, for a while now, he has believed that the Federal Reserve (Fed) might need to maintain short-term interest rates at the current level of 5%-5.25%.
Progress on Inflation and its Impact
Bostic noted significant progress on the inflation front. He found the latest consumer price index reading, which showed a 4.9% increase from the previous year, as opposed to 5% a month before, to be "encouraging." He expects the economy to respond favorably in the coming months.
Bias Towards Increasing Rates
Despite the progress, Bostic suggested that if there were to be any bias towards action, it would be in the direction of a slight rate increase rather than a cut.
Fed's Pause on Rate Hikes
Following the Fed's latest interest rate hike in early May, Chair Jerome Powell indicated that the central bank might pause to evaluate the impact of rapid rate hikes on the economy.
LATEST: Federal Reserve Bank of Atlanta President Raphael Bostic said there is some risk of a recession in the near future.
— Paryte (@Parytecom) May 15, 2023
Low Unemployment and Inflation
The current unemployment rate of 3.4% is the lowest it has been in over half a century. Bostic believes that the economy will remain robust even with a potential increase due to decreasing inflation.
The Possibility of Recession
While Bostic does not predict a recession in his base forecast, he opined that any potential recession would likely be brief and shallow.
