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Interest rates will likely remain high, Atlanta Fed president says


WASHINGTON — The Federal Reserve has reached a delicate stage in its fight against inflation.Its policymakers have raised their key interest rate to about 5.4%, its highest level in 22 years, to try to slow borrowing and spending and cool inflation pressures. They now are considering whether to raise the rate even higher — a move that would heighten the risk of a recession — or leave it at its current level for an extended period.Though inflation has slowed for the past year, it’s showing signs of stickiness at its current levels. A recent uptick in gas prices sent inflation a bit higher in July.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta and a member of the Fed’s interest rate policy committee, doesn’t think another hike is needed. But Bostic favors keeping the benchmark rate at its current level well into 2024. The Associated Press interviewed Bostic in late August and it has been edited for length and clarity:

(AP Illustration/Peter Hamlin)

Q: Since March 2022, the Fed has rapidly raised its key rate. Yet unemployment has stayed remarkably low. How has the economy withstood the higher borrowing costs?A. There’s your standard economic theory, and then there’s the real world. And a lot of times they don’t align. The economic theory would have said this kind of increase should have material impacts on economic output and employment. But we’re not in a normal time, and the pandemic is still having effects on the economy and on the conditions that American families and businesses face.So we saw a lot of policy that was put in to support families and businesses. We saw a lot of families actually continue to get income and not be able to spend because they were on lockdown. And both of those realities have left businesses and families just stronger than they would historically be at this stage in an economic cycle. And so a lot of the tightening of our policy is being absorbed by that strength.I think there’s still a fair amount of momentum in the economy. And when I talk to bankers and others, they will tell me that a lot of their customers still have savings balances that are higher than they were pre-pandemic. And so that is going to allow them to be more resilient then we might expect otherwise, while the other difficulties in the economy start to resolve themselves like supply chains and that kind of stuff. I think that’s pretty much what we’re seeing right now.



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