WASHINGTON- Atlanta Federal Reserve President Raphael Bostic said he still believes the US central bank can tame inflation without substantial job losses given the economy’s continued momentum.
“If you look over history … there is a really good chance that if we have job losses it will be smaller” than in past slowdowns, Bostic said on CBS’s “Face the Nation” program.
“Inflation is high. It is too high. And we need to do all we can to make it come down,” Bostic said of the Fed’s plans to continue with aggressive interest rate increases meant to slow the economy, bring the demand for goods and services more in line with supply, and lower inflation running at a four-decade high.
How deep and enduring a slow down is needed – and the job losses that might entail – remains a matter of debate, with Fed officials continuing to argue that companies will be unlikely to lay off workers that have been hard to hire during the COVID-19 pandemic.
Citing continued strong growth in payroll jobs, Bostic said there is “a lot of positive momentum. … There is some ability for the economy to absorb our actions and slow in a relatively orderly way.”
Bostic also said, “We need to have a slowdown. … We are going to do all that we can at the Federal Reserve to avoid deep, deep pain.”
Bostic spoke after a volatile week in global financial markets.
The Fed on Wednesday approved its third consecutive three-quarter point interest rate increase and issued projections that showed rates rising higher, and staying there longer, than investors had anticipated.
Along with similar moves by a host of other central banks, the news triggered a sharp sell-off in equity markets and warnings that with so many monetary officials tightening policy at once the risks of global recession were rising.
Other cracks appeared.
Japan, its import prices and therefore local inflation buffeted by a rising dollar, intervened for the first time in nearly a quarter century to strengthen the yen.
The United Kingdom proposed tax cuts seemed to put fiscal policy at odds with efforts by the Bank of England to tame inflation with interest rate increases. The pound fell about 3.5 percent against the dollar to its lowest level since 1985.
Despite the global concerns, Fed chair Jerome Powell said the central bank would keep its focus on US inflation and would need to see a convincing drop in the pace of price increases “over coming months” to change its outlook.
Powell vowed last week that he and his fellow policymakers would “keep at” their battle to beat down inflation, as the US central bank hiked interest rates by three-quarters of a percentage point for a third straight time and signaled that borrowing costs would keep rising this year.
In a sobering new set of projections, the Fed foresees its policy rate rising at a faster pace and to a higher level than expected, the economy slowing to a crawl, and unemployment rising to a degree historically associated with recessions.
Powell was blunt about the “pain” to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a “correction.”
Earlier on Wednesday, the National Association of Realtors reported that US existing home sales dropped for a seventh straight month in August.
The United States has had a “red hot housing market … There was a big imbalance,” Powell said in a news conference after Fed policymakers unanimously agreed to raise the central bank’s benchmark overnight interest rate to a range of 3.00 percent-3.25 percent. “What we need is supply and demand to get better aligned … We probably in the housing market have to go through a correction to get back to that place.”
Powell was blunt about the “pain” to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a “correction.”
That theme, of a continuing mismatch between U.S. demand for goods and services and the ability of the country to produce or import them, ran through a briefing in which Powell stuck with the hawkish tone set during his remarks last month at the Jackson Hole central banking conference in Wyoming.
Recent inflation data has shown little to no improvement despite the Fed’s aggressive tightening – it also announced 75-basis-point rate hikes in June and July – and the labor market remains robust with wages increasing as well.
