Atlanta Fed President: "One Rate Hike Is Enough... Difficult to Cut"

A Federal Reserve (Fed) official suggested that the Fed's interest rate hike cycle is entering its final stage.

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said on the 18th (local time) during an appearance on CNBC that "one more move would be enough" regarding the benchmark interest rate hike. This signals that the Federal Open Market Committee (FOMC) meeting scheduled for May 2-3 will raise rates by 0.25 percentage points and end the tightening cycle.

If the Fed freezes rates after a 0.25 percentage point hike as Bostic indicated, the U.S. benchmark interest rate will reach 5-5.25%, the highest level since August 2007. This corresponds to the year-end rate (median 5.1%) projected by the Fed in its dot plot.

[Image source=EPA Yonhap News]

Bostic explained, "We will take a step back to see how the (tightening) policy impacts the overall economy and whether inflation returns to the target level." Since there is a lag before tightening policies affect inflation, employment, and the broader economy, he emphasized the need to pause rate hikes and monitor the situation.

He also ruled out the possibility of additional hikes or cuts. Bostic, who does not have a voting right at this year’s FOMC, said, "If the data comes out as expected, we could stay at that level for quite some time," adding, "Once we reach that point, for the rest of this year and into 2024, there is nothing to do but monitor the economy." Regarding market expectations of rate cuts, he dismissed them, saying, "Inflation is still too high to consider that." He noted, "For rates to come down, inflation must return to the 2% target," and "I do not see that happening anytime soon."

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market currently reflects about an 87% probability that the Fed will take a baby step by raising the benchmark rate by 0.25 percentage points in May. The most prevalent view is that rates will then be held steady and that a 0.5 percentage point rate cut will begin in the second half of the year. This contrasts with Bostic’s outlook, as the market is placing more weight on a pivot within the year.

On the same day, Bostic dismissed recession concerns spreading after the Silicon Valley Bank (SVB)-triggered banking crisis. He said, "I do not see us falling into a recession," and described the regional banking situation as "stable." However, he added that "we do not know when the next shoe will drop," and that the Fed will continue to remain vigilant.

This content was produced with the assistance of AI translation services.