Raphael Bostic says Fed should not wait inflation to reach 2 percent to start rate cuts
(MENAFN) Atlanta Federal Reserve President Raphael Bostic recently emphasized that the Federal Reserve should not wait until inflation reaches its 2 percent target before initiating cuts to interest rates. In an article published on the Atlanta Fed's website, Bostic argued that maintaining a restrictive monetary policy for an extended period could lead to significant disruptions in the labor market. He suggested that waiting for inflation to fall all the way to 2 percent could cause unnecessary economic pain and suffering, especially in the job market.
Bostic acknowledged that the US labor market is showing signs of weakening but is not yet in a critical state. He noted that the unemployment rate has increased to 4.3 percent this year, approaching the Federal Open Market Committee's (FOMC) long-term projection of 4.2 percent. Despite this, Bostic pointed out that the labor market remains relatively stable and has not deteriorated to the extent that would warrant extreme caution in adjusting interest rates.
Additionally, Bostic observed that the high wage growth observed following the coronavirus pandemic is starting to moderate, which he views as beneficial for maintaining price stability. While he supports healthy wage increases, he cautioned that rapid wage growth could lead businesses, particularly in the service sector, to raise prices to offset higher labor costs. This, in turn, could contribute to inflationary pressures that complicate the Fed's efforts to stabilize prices.
Despite these observations, Bostic made it clear that he is not ready to declare that the Fed has successfully conquered inflation. He acknowledged that risks to achieving the Fed's price stability mandate still exist. The Federal Reserve's next two-day meeting is scheduled to conclude on September 18, and it is widely anticipated that the Fed may begin to lower interest rates at that time, reflecting a shift in its monetary policy stance.
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