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

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, describing himself as skeptical of the need to lower interest rates.

After Fed Chairman Jerome Powell outlined in Congressional testimony this week how weak global growth posed risks to the United States that might warrant lower rates, Bostic said, “I am not seeing the storm clouds actually generate a storm yet.”

“With very few exceptions businesses are telling me the economy is performing as strong as it was. They are not seeing weaknesses in consumer engagement. And they are not materially changing their plans.”

Between strong job growth and inflation, he believes, stable and close to the Fed’s 2% target, current conditions are “a ‘keeper,’” Bostic said.

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.

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%, below the 2% target, some policymakers argue the central bank needs to do more or risk losing public trust that it takes the target seriously.

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“If the public comes to believe that a persistent downside miss to the 2% 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% 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.

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