Fed’s Bostic says there is no reason to change policy despite inflation fears

Atlanta Federal Reserve Chairman Raphael Bostic told CNBC on Monday he was comfortable with the central bank’s ultra-flexible policies even as inflation gained ground in the US economy .

“We are still 8 million jobs short from where we were before the pandemic,” Bostic told CNBC’s Steve Liesman in an interview with “Squawk Box.” “Until we make substantial progress in closing that gap, I think we need to have our policies in a very strongly accommodating situation or position.”

Currently, the Fed is keeping its benchmark short-term lending rates pegged near zero and is buying at least $ 120 billion in bonds each month.

This happened even as the consumer price index climbed 4.2% in April, well above Wall Street expectations, and like that of Bostic Atlanta Fed’s GDPNow Tracking puts second quarter growth at 10.5%.

However, April’s disappointing jobs report, with non-farm payrolls increasing only 266,000 to 1 million, likely put Fed policymakers on hold, where Bostic said he did. would be until he sees a broader economic recovery.

“I’m a nervous guy. I always think of scenarios. Do we stay in our places too long? But I don’t see that right now, and I don’t really think we need to act,” he said. “So I’m going to keep my eyes open and I’m definitely going to be really careful. But now is not the time we have to consider moving.”

The Fed is committed to keeping its policy in place until it reaches a full and inclusive employment target, and will allow inflation to exceed its 2% target until it hits. averages around this level for an extended period.

Market-based measures of inflation continue to increase. The 5-year breakeven point, which compares inflation-linked bonds to T-bills of the same duration, is 2.68%, its highest level since July 2008.

However, other measures, including the Fed’s preferred personal consumption expenditure index and the Fed’s Cleveland inflation expectations measure, are well within the central bank’s target range.

In fact, Bostic said he sees rising inflation as a positive sign. He and other Fed officials wrote off the most recent price hikes due to temporary factors that will likely subside later this year.

“I actually think having healthy inflation is a sign that the economy is healthy, that the economy is going to be vibrant and growing, and that should translate into jobs for the people who care about everyone. world at the bottom of the salary. distribution, ”he said.

“Therefore [if] we don’t have an economy that hires people so that they can have jobs and go on a more sustainable trajectory, so we’ll have a much harder problem to tackle, ”he added.

Bostic said researchers at the Atlanta Fed will spend the summer talking to workers, business owners and others to get a better idea of ​​future inflation expectations.

“I don’t think we’ll have any answers on this until at least early fall, and it will take longer than that,” he said. “It all depends on how quickly we recover.”

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