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Fed’s Bostic sees 6 rate hikes this year, risk of war

FILE PHOTO: Raphael Bostic, President of the Federal Reserve Bank of Atlanta, participates in a panel discussion in Atlanta
FILE PHOTO: Raphael Bostic, President of the Federal Reserve Bank of Atlanta, participates in a panel discussion at the 2019 American Economic Association/Allied Social Science Association (ASSA) Meeting in Atlanta, Georgia, the United States, January 4, 2019. REUTERS/Christopher Aluka Berry

March 21, 2022

By Ann Sapphire

(Reuters) – Atlanta Federal Reserve Bank President Raphael Bostic said Monday he has made a total of six rate hikes for this year and two for 2023, fewer than most of his peers, as he worries about the impact of the Russian Invasion of Ukraine on the US economy.

“Getting high inflation rates under control is my top priority for 2022,” Bostic told the National Association for Business Economics, also noting that addressing the significant imbalance between labor supply and demand is crucial.

But, he added, “the heightened level of uncertainty is my view forward and has tempered my confidence that an extremely aggressive rate path is appropriate today.”

If the data shows that further rate hikes are indeed required, or in larger increments, he later told reporters he would happily support them and had “no obligation, not bound by anything”.

But he expects that while inflation will still be too high at 4.1% by the end of this year, supply chains will be repaired and workers will return to the labor market when the pandemic subsides, and “we can find a balance.” , without us having to really actively slow down the economy with our policies.”

The Fed last week hiked interest rates in its first rate hike since 2018, raising them from near zero to tame inflation, which currently stands above 6%, three times the central bank’s target.

Most Fed policymakers expect rates to rise to at least 1.9% by the end of the year, up a quarter point at each of the six remaining Fed meetings of the year, with four more next year to be expected.

Bostic said he sees the Fed’s neutral interest rate at 2.25% and cannot predict with any degree of certainty whether his own forecast for rate hikes this year will hold.

“It could be quicker if developments occur in a way that justifies it, or it could be slower. I’m really watching and adjusting in real-time because it seems like so much is happening,” Bostic said. “The world keeps surprising me.”

Bostic said Monday the labor market was tight, noting that it was “crucial” to restore the balance between labor supply and demand. However, he added that he believes that the current high wage growth, which overall is still below inflation, reflects employers trying to keep workers from wage arrears and is not a permanent feature of the labor market.

The Atlanta Fed chief said the conflict in Ukraine will continue to push up prices for commodities such as oil and wheat, but also more generally as companies retool their supply chains.

Both conditions are likely to exacerbate already intense inflationary pressures; On the other hand, risks “go both ways,” with conflict-fuelled uncertainty likely to reduce economic activity, he said.

“Should demand falter amid economic uncertainty or the unwinding of monetary accommodation, then the appropriate path may be flatter than I currently forecast,” Bostic said. “But there are other developments, such as shifts in supply strategies, that could mean higher costs and thus motivate a steeper policy course than I expect.”

Bostic’s comments came at the start of a conference, just hours before Fed Chair Jerome Powell is also expected to speak, and investors will be on the lookout for fresh clues on the likely path for interest rates.

(Reporting by Ann Saphir; Additional reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama and Andrea Ricci)

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DUSTIN JONES

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