The president of the Atlanta branch of the Federal Reserve has backed a fourth consecutive 0.75 percentage point rate rise at the next policy meeting in November, while urging the US central bank to be “mindful” of geopolitical and economic turbulence abroad.
The comments from Raphael Bostic come as the UK has become engulfed in a financial crisis after the government said it planned to implement £45bn of debt-funded tax cuts.
The announcement, which has drawn sharp criticism from the IMF and other prominent policymakers, prompted the Bank of England on Wednesday to intervene in the government bond market.
Bostic said the Fed needed to be “mindful” of international developments but added that the US economy and financial system were well fortified.
“The US economy still has a considerable amount of momentum,” he told reporters, adding that the US is less susceptible to “contagion” because of its economic strength.
Given the strength of the US economy and persistent high inflation, he said his “baseline” is for the central bank to deliver another 0.75 percentage point rate increase at the next gathering of the Federal Open Market Committee in November, followed by a half-point adjustment in December.
That would bring the federal funds rate from its current level of 3 per cent to 3.25 per cent to a new target range of 4.25 per cent to 4.5 per cent.
“I’m just going to have that as a starting point and let the data and the reality take me where they will,” Bostic said.
When asked about how the Fed will calibrate policy to avoid overtightening, he said he would look at a broad range of metrics beyond the inflation rate, which is a lagging indicator.
“My expectation is that the actual inflation number will be the last thing to move and that we will start to see the imbalances narrow in advance of seeing inflation move down in a meaningful way,” Bostic added.
Jay Powell, Fed chair, has maintained that reducing inflation will require a sustained period of “below trend” growth and higher unemployment.
Most officials see the unemployment rate rising to 4.4 per cent as growth slows to 0.2 per cent this year and settles at 1.2 per cent next year, although many economists say those estimates are still too optimistic.