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Atlanta Fed’s Bostic favors holding rates steady through year end

Atlanta Fed President Raphael Bostic said Wednesday he thinks the Federal Reserve should hold interest rates steady at current levels through at least the end of this year to better judge the impact the central bank's aggressive rate hikes have had on the US economy.

"My baseline is that we should stay at this level for the rest of the year," Bostic told Yahoo Finance in an interview on Wednesday.

"I actually think that we are still at the very early stages of our monetary policy tightening, starting to influence the economy in a significant way. I just feel like we have a little bit of time to just let that play out and see exactly how much the economy is responding to our policy."

Bostic said it could take anywhere from six to 24 months for the economy to feel the full brunt of the Fed's policies.

President and Chief Executive Officer of the Federal Reserve Bank of Atlanta Raphael W. Bostic speaks at a European Financial Forum event in Dublin, Ireland February 13, 2019. REUTERS/Clodagh Kilcoyne
President and Chief Executive Officer of the Federal Reserve Bank of Atlanta Raphael W. Bostic speaks at a European Financial Forum event in Dublin, Ireland February 13, 2019. REUTERS/Clodagh Kilcoyne (Clodagh Kilcoyne / Reuters)

The Fed raised the target range for its benchmark interest rate — the fed funds rate — from a range of 0%-0.25% to its current level of 5%-5.25% over a 10-meeting stretch from March 2022 through this past May.

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"I still think we're kind of still early in the game in terms of seeing our restrictive policies impacts, and I'm very comfortable waiting," Bostic said.

Bostic is one of the most dovish members of the Fed. The majority of Fed officials see anywhere from one to three more rate hikes as likely needed this year to continue cooling inflation, new forecasts from the Fed showed last week.

"There's often been a conclusion that the Fed has always gone like one or two steps further than they absolutely needed to," Bostic said. "I just have that in my head as something that we should be mindful of as we think about the trajectory of our policy."

Bostic added that he wants to support everything possible to ensure the economy avoids a significant recession but is also mindful of bringing inflation down steadily.

Data released earlier this month showed consumer prices rose 5.3% on a "core" basis, which strips out the more volatile costs of food and gas. The Fed targets 2% inflation.

Still, the Atlanta Fed president said he believes interest rates are currently in restrictive territory — or a high enough level such that the economy should be slowing as a result — and said he's seeing signs supply and demand are coming into better balance, pointing to the job market in particular.

"All these things tell me that there's really an opportunity for us to have significant slowdown, a significant continued reduction in inflation and steady movement back to our 2% target," he said. "I'm expecting inflation to come back to target in a very measured way over the course of an extended period of time."

A slowdown in the economy won't be enough to warrant outright cuts in interest rates, in Bostic's view. Of course, if the economy were to remain stronger than expected, Bostic said he would have to consider changing his thinking on holding rates steady, and perhaps increasing rates once again.

"That's not what I'm expecting to see happen," Bostic said. "The next several weeks I'll have a much better sense of what we need to do, but again, I do feel like we're in a position now where some patience can do as well."

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