Raphael Bostic says Fed needs to ‘stay the course’ despite lower wage gains

Atlanta Federal Reserve President Raphael Bostic said on Friday that December’s jobs report, with slower wage growth and better-than-expected employment growth, did not change his view on monetary policy.

The central bank official said he still sees interest rates rising, up to 5% for the Fed funds rate, where he sees it staying for an extended period.

“It doesn’t change my view at all,” Bostic told CNBC’s Steve Liesman during a live interview at a conference in New Orleans. “I’ve been looking for the economy to slow down steadily from the strong position it was in over the summer. This is just the next step in that.”

Nonfarm payrolls added 223,000 positions last month and the unemployment rate fell to 3.5%, the Labor Department reported. That was slightly better than the corresponding estimates for 200,000 and 3.7%.

Perhaps most importantly, average hourly earnings rose just 0.3% for the month and 4.6% from a year earlier, both below expectations and an indication that the inflationary spiral that has gripped the economy for the past year and a half may be being relieved.

However, Bostic said he expects another rate hike of either a quarter or half a percentage point when the Fed issues its decision on Feb. 1. The funds rate is currently targeted between 4.25% and 4.5%. Bostic is a non-voting member this year of the rate-setting Federal Open Market Committee; he will vote again in 2024.

Open jobs still outnumber available workers by nearly 2 to 1, and wage growth is much higher than it was before the Covid pandemic. Bostic added that he does not think wages have been a major driver of inflation that escalated in mid-2021 to the highest level in more than 40 years.

“We have to stay the course,” he said. “Inflation is too high. We need to reduce these imbalances in order to move faster to our 2% [inflation] objective.”

Fed officials at their December meeting expressed concern that the public could misinterpret the central bank’s move toward a small rate hike — 0.5 percentage point from four consecutive moves of 0.75 percentage point — as an easing in policy.

Bostic stressed that the Fed cannot “claim victory prematurely” and must not only continue to push rates higher, but keep them there.

“What I think is important [point] it’s just holding there and staying there and letting that political stance really grip the economy and just making sure that the momentum stops completely so that we get to a place where supply and demand start to become more balanced and begin to see them. “Inflationary pressures are really starting to ease,” he said.

Bostic said he doesn’t expect a recession to follow the Fed’s actions, and if there is one, he sees it as “short and shallow.”