Fed’s Bostic sees a doable price hike as early because the second half of subsequent 12 months
Raphael Bostic, President and Chief Executive Officer of the Federal Reserve Bank of Atlanta.
Christopher Dilts | Bloomberg | Getty Images
Interest rates could rise earlier than forecast as the economy recovers faster than expected from the effects of the Covid-19 damage, said Raphael Bostic, president of the US Federal Reserve in Atlanta, on Monday.
While most of his peers won’t see a rate hike until 2023, Bostic believes the Fed’s emergency measures to fight the pandemic can be reversed within the next two years, if not sooner.
“I think there is a chance the economy will return a little stronger than some expect,” he said during a virtual Q&A outside the Atlanta Rotary Club. “In that case, I am ready to assist in pulling out and recalibrating part of our accommodation and then thinking about changing the key rate.”
“But I don’t see that in 2021. A lot would have to happen to get us there,” he added. “Then we’ll see until 2022. Maybe the second half of 2022 or even 2023, where that could be more at stake.”
At their December meeting, the members of the Federal Open Market Committee set out their individual expectations for the next few years. The median expectation for the Fed’s policy rate was to stay in its current target range of 0% to 0.25% through 2023, with a longer-term estimate of 2.5%.
Of the 17 FOMC members who submitted “points” guidelines representing their forecast, none saw a rate hike in 2021 and only one showed a rise in 2022. For the following year, three saw a single increase of 25 basis points while one point higher indicated an increase of 50 basis points and another point moved 100 basis points, which is a full percentage point or the equivalent of four increases.
Fed officials were largely cautious about the multitude of risks to the forecasts, and Bostic also noted that growth will depend almost entirely on how quickly Americans are vaccinated and the coronavirus contained.
“All of the economic fallout was a function of our response to the public health crisis,” he said. “Forecasting this year is essentially a forecast of how well the vaccine will penetrate the population. So we are in a place where we don’t have to be as careful as we do our business. “
Bostic said he will examine three data points to assess when the Fed can start rolling back its actions during the time of crisis. In addition to the near-zero interest rates, the Fed expanded its balance sheet by more than $ 3 trillion and ran a number of credit and liquidity programs, some of which were suspended in late 2020.
These metrics include temporary or permanent job losses, small business health, and consumer confidence. Overriding all three, however, will be the path of the virus and the success of efforts to control it, he said.