The Fed’s Bostic sees rates hike next year as inflation persists

Atlanta Federal Reserve President Raphael Bostic said Thursday that he expects a rate hike later in 2022 as he predicts a growing economy and ongoing inflationary pressures.

The central bank official told CNBC that he “dragged” a rate hike in “late third, perhaps early fourth” quarter of 2022. The expectation puts him on the more restrictive side of Fed officials, who are now about whether policy will tighten next year.

“Our experience with the pandemic was really a positive surprise,” he said in a live interview with “Closing Bell”. “I’ve really adjusted my expectations in the future.”

Bostic’s outlook comes as some of the latest economic data is slowing and the Atlanta Fed’s own GDP tracker estimates GDP growth of just 0.5% in the third quarter.

He said he believes some of the barriers posed by the Covid-19 pandemic will go away and pave the way for stronger growth. One challenge he doesn’t see disappearing anytime soon is inflation.

Other Fed officials have called the current wave of inflation, which is at a 30-year high, temporary. Bostic rejects this idea. He said price pressures are looming across the economy and will affect growth and politics.

“The disruptions will last longer than expected,” said Bostic. “Labor markets are not going to find equilibrium as quickly as we hoped they would, but demand would also remain high and that combination would mean that we would have inflationary pressures. The more I talk to people the clearer it gets and the clearer this will take until 2022. “

The Fed has anchored its short-term reference rate near zero since the beginning of the pandemic. Over the past few weeks officials have signaled they are ready to cut down on monthly asset purchases, possibly starting in November. Bostic preferred this step.

He also said he would monitor inflation developments closely. If the Fed needs to hit the brakes to control prices, Bostic said he would “really encourage my colleagues and I to take some definitive steps to try to keep this damage from getting very deep.”

Bostic also addressed an important announcement by the Fed on Thursday in which it said it would ban top officials from buying and selling individual stocks and bonds, as well as gambling in the derivatives market. The move follows trading disclosures that led to the resignation of two regional Fed presidents.

Bostic said he welcomed the change.

“I think this is a step to reflect and acknowledge that conditions have changed our position. The market has changed and we need to change our approach to ensure that public confidence is maintained,” he said.