The Federal Open Market Committee should be “cautious and patient” when it comes to further tightening of monetary policy or risk doing more harm than good, Federal Reserve Bank of Atlanta Raphael Bostic said today. The FOMC in July voted to raise the target range for the federal funds rate by 25 basis points to 5.25% to 5.5%. Speaking during a central bank conference in South Africa, Bostic said that he believes policy is appropriately restrictive to return inflation to the Fed’s 2% target over time. (Bostic is currently an alternate member of the FOMC.)
“I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain,” Bostic said. “That does not mean I am for easing policy any time soon. Inflation in the United States is still too high. The battle against inflation has seen significant progress. Inflation is well off the very elevated levels we saw in the last year, but it’s essential that it be brought all the way back to our target.”
Bostic cautioned that uncertainty remains in the economic forecast, citing potential risk from heavy corporate and government debt, the war in Ukraine, extreme weather events, and commercial and residential real estate. The banking sector itself remains a source of risk in a higher interest rate environment, “though by and large the U.S. banking system is sound and well capitalized,” he said.
“Given widespread economic uncertainty, I do not expect our path from here to the 2% inflation objective—the last mile, if you will—to be without curves and bumps,” he added.
