The chairman of the Atlanta branch of the Federal Reserve backed a fourth straight hike of 0.75 percentage points at the next policy meeting in November, while urging the US central bank to be “mindful” of geopolitical turmoil and economy abroad.
Raphael Bostic’s comments come as the UK is plunged into a financial crisis after the government said it planned to implement £45billion in debt-funded tax cuts.
The announcement, which drew sharp criticism from the IMF and other top policymakers, prompted the Bank of England to intervene in the government bond market on Wednesday.
Bostic said the Fed needed to be “mindful” of international developments, but added that the U.S. economy and financial system were well strengthened.
“The US economy still has considerable momentum,” he told reporters, adding that the United States is less susceptible to “contagion” because of its economic strength.
Given the strength of the U.S. economy and continued high inflation, he said his “baseline” was for the central bank to make another rate hike of 0.75 percentage points when the next meeting of the Federal Open Market Committee in November, followed by a half-point increase. adjustment in December.
This would take the federal funds rate from its current level of 3% to 3.25% to a new target range of 4.25% to 4.5%.
“I’m just going to take that as a starting point and let the data and the reality take me where they want to go,” Bostic said.
Asked how the Fed will calibrate policy to avoid excessive tightening, he said he would look at a wide range of metrics beyond the inflation rate, which is a lagging indicator.
“I expect the actual inflation number to be the last thing to move and we start to see imbalances narrow before we see inflation come down significantly,” Bostic added.
Fed Chairman Jay Powell argued that reducing inflation will require an extended period of “below-trend” growth and higher unemployment.
Most officials see the unemployment rate climbing to 4.4% as growth slows to 0.2% this year and stabilizes at 1.2% next year, although many economists say those estimates are still too optimistic.