(Reuters) – The Federal Reserve may need to wait longer to cut interest rates because even with April’s slightly cooler inflation reading there is continued upward pressure on prices, Atlanta Fed President Raphael Bostic said on Thursday.
“We’re not past the worry point in terms of inflation getting back to our target,” Bostic said during a virtual class session with Stanford University business school students, noting that the share of goods for which prices are rising faster than 3% or 5% is higher than in a normal environment, even in the latest consumer price index reading.
Meanwhile, the labor market shows little sign of distress, he indicated. “Job growth has been robust … which tells me there’s still a lot of energy in the economy, and it gives me comfort in staying at a more restrictive level because we’re not at risk today, I don’t think, of falling into a contractionary environment,” Bostic said.
Bostic leans a bit more hawkish than some of his colleagues at the Fed, though the higher-than-expected inflation readings in the first three months of the year have brought more of his fellow U.S. central bankers to a similar view: that they will need to keep the policy rate in its current range of 5.25%-5.5% for longer than they had previously thought.
Bostic has said he believes the Fed may need to delay a rate cut until the last three months of this year, a wait he justifies in part because he hears from business owners who say they are waiting to deploy capital until borrowing costs become more attractive.
“That could spur a sort of resurgence, if you will, of economic activity that might be counterproductive to what we’re trying to accomplish,” Bostic said on Thursday. “I have really actually taken that on board … and it might be that we have to be a little more patient and be more certain that inflation is on its way” to the Fed’s 2% goal before cutting interest rates.
Bostic said he would not consider any change in the Fed’s 2% inflation target until the Fed meets that goal, but once it does, that could be the time to discuss if a new benchmark is needed, given structural changes in the economy since the pandemic that may be pushing up on inflation.
The Fed will start a new framework review in 2025 that could include such a topic, Bostic said.
(Reporting by Ann Saphir; editing by Jonathan Oatis and Sandra Maler)