Cooling Down Concerns About Overheating the U.S. Economy

  • Bostic sees a “neutral” Fed rate in the range of 2.25% and 2.75%
  • First black president to lead a Federal Reserve regional bank

Atlanta Fed President Raphael Bostic wants to get the fed fund rate to neutral. He defines a “neutral” rate in the range of 2.25% and 2.75%. Bostic is a voter this year on the policy-setting Federal Open Market Committee. His forecast calls for three interest-rate increases in 2018. Can the most recent jobs data stymie concerns about the risk of overheating and reduce worries about a Fed policy mistake?

Why This Matters: In March, the Fed raised rates a quarter basis point to 1.75%. Two more rate hikes this year would get the Fed into the low end of Bostic’s neutral range. “I’m actually very comfortable going above 2% to some amount, 2.2% - 2.3%, I don’t think that is a crisis of overheating necessarily,” Bostic said.

The jobs report data could impact future Fed rate hikes, numbers Federal Reserve policymakers watch closely. They’re primarily keeping a close eye on wages for signs of inflation. The U.S. economy added 103,000 jobs in March, a far cry from the 326,000 reported in February. However, this report comes amid a series of mixed signals for the economy with inflation up 2.7% annualized pace. Concerns about the risk of overheating should diminish with this data and reduce worries about a policy mistake that would derail growth. The central bank is widely expected to hike its benchmark interest rate in June and at least once more before the end of the year.

Situational Awareness: Raphael Bostic is the first black president to lead any of the 12 Federal Reserve regional banks, and just the fourth to serve on its policy-making committee. There has been a coalition of liberal groups pressing for greater diversity at the central bank. This was a sentiment echoed loudly in the most recent search for New York’s next Fed president, that job went to a Fed insider John Williams. “The New York Fed has never been led by a woman or a person of color, and that needs to change,” Senator Kirsten Gillibrand, Democrat of New York, said in a statement.

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