Federal Reserve Bank of Atlanta President Rafael Biostic said January’s strong jobs report raises the likelihood that the central bank will need to raise interest rates to higher peaks than policymakers had previously expected.
“If a stronger-than-expected economy persists, it will probably mean we have to do a little bit more work,” Biostik told Bloomberg News in a phone interview on Monday. “And I expect that will translate into us raising interest rates, as I anticipate now.”
Bostic reiterated that his base case remains in line with policymakers’ December forecasts to reach 5.1% on average, and remain so throughout 2024. A higher peak could come via an additional quarter-point increase beyond the two currently envisioned, he said while not ruling out a half-point increase.
Two-year Treasury yields soared higher and US stocks fell following the publication of Bastick’s comments, although they later rebounded.
Investors have picked up from where they see rate hikes this year and are now in line with that projection after a stronger-than-expected January jobs report. Employers added 517,000 new jobs last month, while unemployment fell to 3.4%, the lowest since May 1969.
The Federal Open Market Committee last week raised its benchmark rate by a quarter percentage point, from 4.5% to 4.75%. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point increases before that.
The Atlanta Fed president, who does not vote on policy this year, said officials would need to understand whether the jobs report was an “odd reading,” in which case he would be “inclined to watch it a little bit.” .
Bostic said the committee could consider going back to 50 basis points if needed, although this is not his expectation. He supported a rate cut last week.
“I wouldn’t be surprised if we see a stronger quarter this quarter or next quarter than people are expecting,” Biostik said.
“The first task for us is to bring inflation back under control,” he said. “And I’m going to do everything I can to see that we do that.”
Bostic said that even after freezing rate hikes, the committee could still opt for further hikes if needed.
“I like optionals, so I’m never going to rule out an action, but I think a lot of it will depend on how the economy develops relative to my expectations,” he said. “We understand what data dependency means and we’re going to try to avoid getting too locked into just one approach.”
Bostic said he expects inflation to be in the “low 3s” this year, which is still well above the Fed’s 2% target it needs to keep rates on hold longer.
“It can take a long time to feel the last few tenths of a point,” he said. “And so I want to make sure we are in the right place before we ease our policy because the most important thing at this stage is to get our price stability measure as close to the target as possible.”
Chairman Jerome Powell, speaking to reporters on February 1 after the conclusion of the Fed’s meeting, said that policymakers expected “two more” interest rate hikes before ending their aggressive tightening campaign.
He also cautioned that easing continuing price pressures would require easing in a very tight labor market. The chair cited a ratio of 1.9 job openings for every unemployed worker, which is near a historic high.
Powell has a chance to reinforce his message after the red-hot Jobs print when he speaks again in Washington Tuesday at 12:40 p.m. ET.
The Fed has sought to reduce wage benefits in line with its 2% inflation target. The jobs report showed median hourly earnings rose 0.3% in December and were up 4.4% from a year earlier, yet were revised down last month.
While the jobs data demonstrated the resilience of the job market, Fed officials have said they aim to moderate US growth below its long-term trend to ensure that price pressures are brought down to levels that would not exceed the Covid-19 rate. 19 existed before the pandemic.
The Atlanta Fed chief said a strong payrolls report improved the outlook for the soft landing of the US economy.
“I’ve long said that I think there’s a lot of momentum in the economy and there was a good chance that that momentum was enough to tighten our policy that could help us avoid a recession,” he said.
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