By Howard Schneider
ATLANTA (Reuters) -It “might make sense” for the Federal Reserve to pause further interest rate hikes following expected half-point rate increases over the next two months as the central bank assesses the impact on inflation and the economy, Atlanta Fed President Raphael Bostic said on Monday.
“After you get through the summer…I think a lot of it will depend on the ground dynamics that we are starting to see” both of the inflation the Fed is trying to contain and the impact of higher interest rates on the economy, Bostic said in comments to the Rotary Club of Atlanta.
“I think a pause in September might make sense,” Bostic said.
Bostic’s comments are the most overt suggestion yet that the Fed might see enough progress on inflation — or enough weakness in the economy — to pause its rate increases as soon as September to take stock.
Investors expect the Fed to continue raising rates through this year, putting the federal funds rate in a range between 2.75 and 3% by year’s end. Some of Bostic’s colleagues have called for a more aggressive push to put the rate at 3.5%, which would involve half-point increases at all the Fed’s remaining meetings for the year.
Bostic said he expects a shallower set of moves, with the funds rate ending at a range of 2 to 2.5% at the end of 2022.
While there is risk the central bank may have to be more aggressive, “I’m an optimist and I’m assuming inflation will have started to definitively move” lower by then, Bostic said.
Even so, there are mounting concerns about a global growth slowdown and about how resilient the U.S. economy will be to rising rates, falling equity values, and other adjustments still to come. Bostic said he expected, for example, that the impact of higher borrowing costs may accelerate in coming weeks as potential buyers are priced out of housing markets by rising mortgage rates, and households and firms slow purchases out of caution over the economic outlook.
The challenge, Bostic said, is to walk the “knife edge” between raising rates so high as to cause a recession while still ensuring enough is done to curb price increases.
The economy’s response to higher rates “is going to accelerate over the next several months,” Bostic said. “If we’re not on it, there’s a risk that we will keep moving beyond the point where these markets have found the equilibrium.”
(Reporting by Howard SchneiderEditing by Chris Reese and Leslie Adler)
