Fed’s Bostic warns of risk of maintaining restrictive policy for too long

Atlanta Federal Reserve President Raphael Bostic said Wednesday that the U.S. central bank should not keep interest rates too high for much longer or risk doing too much harm to employment.

“We should not maintain a restrictive policy stance for too long,” Bostic said in an essay posted on the regional bank’s website.

Waiting until inflation has actually retreated to the Fed’s 2% target before cutting borrowing costs “would risk labor market disruptions that could inflict unnecessary pain and suffering,” he said.

Bostic added that the recent reports reinforced his confidence that inflation is now on a sustainable path to return to the Fed’s target, with price pressures falling rapidly and broadly.

Fed Chair Jerome Powell has made clear that the central bank intends to cut its benchmark rate from the current range of 5.25%-5.5%, where it has been for more than a year, at its policy meeting on Sept. 17-18. The only question is whether the cut will be by a quarter or half a percentage point.

The Fed is seeking a “soft landing” for the economy, in which growth slows gradually, inflation returns to the 2% target and unemployment does not spike. After suffering higher-than-expected inflation in the first part of the year, the annual pace of price increases slowed to 2.5% in July, according to the Fed’s preferred measure.

Instead, attention has focused on the rising unemployment rate, which in July neared a three-year high of 4.3 percent, its fourth straight monthly rise, amid growing concern that high borrowing costs may be dampening demand for labor too much.

Bostic said business contacts have mentioned a slowdown in hiring, but only a few have plans for layoffs.

“I don’t sense an impending crisis or panic among business contacts. However, the data and our baseline commentary describe an economy and labor market losing momentum,” he said, adding that it was too early to declare victory over inflation and that he and his colleagues must remain vigilant.

[Con información de Reuters]

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