Atlanta Federal Reserve President Raphael Bostic recently appeared on CNBC’s “Squawk Box” to discuss a range of topics, including public sentiment versus economic data, his views on Federal Reserve policy, and the current economic landscape.
The interview began with a request to Bostic to contextualize recent comments made by the Federal Reserve Chairman. Bostic acknowledged that these are complex times with various factors influencing the economy, such as fluctuating inflation rates and a resilient broader economy. He emphasized the importance of focusing on the future and understanding what people think the economy will look like.
When asked about the discrepancy between strong economic data and public sentiment, Bostic mentioned that his conversations with businesses have led him to believe that an economic slowdown is imminent. He stated that he takes these real-world insights seriously and incorporates them into his understanding of the economic landscape.
Bostic revealed that he has been contemplating what policy restrictiveness would look like in the coming six months, given the feedback he has received from businesses about an expected slowdown. He specifically mentioned that he does not expect the Federal Reserve to cut rates before the middle of next year at the earliest.
Bostic said that his colleagues have expressed similar concerns about an economic slowdown and that a lot of the policy tightening has yet to impact the economy fully. He seemed confident that his seat at the Federal Reserve table was secure and that his views are not isolated.
Discussing inflation, Bostic pointed out that the current rate is at 3.7%, significantly above the Federal Reserve’s target of 2%. He stressed that getting inflation under control is a priority, stating that “inflation is job one.”
Bostic also clarified that while he foresees a slowdown in the U.S. economy, he does not expect a recession to occur.
When asked about Chairman Powell’s recent comments, Bostic suggested that the committee is in a “wait and see” mode. He warned that signaling a relaxation of policy could be risky, especially when the inflation rate is still far from the target.
Jerome Powell, the Chair of the Federal Reserve, appeared last week on Bloomberg TV’s “Wall Street Week,” in a conversation hosted by David Westin. The discussion was part of an event organized by the Economic Club of New York. Powell spoke optimistically about the U.S. economy, attributing its robustness primarily to consumer spending. This spending has been buoyed by a strong employment landscape and high starting wages for new jobs.
Discussing interest rates, Powell indicated that their impact on the economy seems to be lessening. He pointed out that companies with access to bond markets have lengthened their debt terms, thereby reducing their sensitivity to rate changes. Similarly, homeowners with long-term, fixed-rate mortgages are also less affected by incremental rate hikes. However, he did acknowledge that sectors like housing and durable goods are still sensitive to interest rate fluctuations.
On the subject of future interest rates, Powell admitted that it’s challenging to forecast the neutral level, given factors like an aging global population and the influence of globalization, which have kept rates low for the past 25 years. He also touched upon the long-term equilibrium rate, noting that it has been in a steady decline for decades, although it might have experienced a short-term rise.
Powell also shared insights from CEOs about the cost of capital, indicating that smaller and early-stage companies could be more adversely affected if the economy remains strong. He reaffirmed the Federal Reserve’s commitment to maintaining low and stable inflation rates, even if such measures are not universally popular. Finally, Powell suggested that the behavior of the bond market could potentially lessen the need for additional rate hikes in the near future.