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Fed's Bostic say U.S. in 'good position' on both inflation and employment

Kitco News

ATLANTA (Reuters) - The U.S. Federal Reserve is “in a good position” on both its unemployment and inflation objectives, with no clear sign the outlook for prices is eroding, Atlanta Federal Reserve Bank President Raphael Bostic said on Thursday, facts that would argue against reducing interest rates.

Bostic said his preferred measures of inflation “suggest it is close to target and not materially trending away from it. What’s more, my preferred data on inflation expectations do not indicate that these expectations are diverging from target either,” Bostic said at an economics conference at the Atlanta Fed. “Combined with 10 straight years of growth and a labor market that added more than 200,000 jobs last month, this suggests that the snapshot of the economy is a ‘keeper.’”

Bostic does not currently have a vote on Fed rate policy, but will participate in the debate when the Fed meets in three weeks in a session widely expected to reduce the Fed’s overnight target interest rate by at least a quarter of a percentage point.

Fed Chairman Jerome Powell, in appearances on Capitol Hill this week, bolstered expectations such a cut is coming, and focused on the need to protect the United States against fallout from a weak global economy.

Bostic said he would keep an open mind on the issue until the meeting.

But his comments on inflation also place him among a group of several Fed bank presidents who in recent days have suggested the need for lower rates is not yet convincing.

With the Fed’s current preferred measure of inflation running at 1.6 percent, below the 2 percent target, some policymakers argue the central bank needs to do more or risk losing public trust that it takes the target seriously.

“If the public comes to believe that a persistent downside miss to the 2 percent goal means the FOMC is not committed to that goal, then there is a problem,” Bostic said.

But he added that his analysis of inflation expectations, based on surveys of professional forecasters and business executives, left him unconvinced that expectations are slipping. In addition, less “noisy” measures of actual inflation, which strip out the most volatile terms, indicate “that right now we are very close to our 2 percent price stability mandate.”

“The current state of the economy measured against the (Federal Open Market Committee) dual mandate is, at the very least, satisfactory,” Bostic said.

Reporting by Howard Schneider; Editing by Diane Craft

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