Fed’s Bostic: I would vote to hold rates

Atlanta Federal Reserve President Raphael Bostic said, on Monday, that if he were voting now, he would vote to hold rates in June, but warned that he has to keep a possible rate hike on the table. He also forecasts inflation to be in the high 3s by year-end, and market participants are pricing in a pause at the FOMC’s June meeting.

Bostic’s comments triggered no surprises, as market participants are currently pricing in a pause at the FOMC’s June meeting. The US Dollar Index is falling by 0.30% on Monday, trading near 102.50.

Inflation remains high even after the Fed hiked interest rates 10 times since early 2022, but Bostic thinks that rate cuts won’t happen anytime soon. The data may point to a longer battle against inflation than many believe, and Bostic’s advice for the Fed in the coming months would be to “go up” with rates. The Atlanta Fed President has been clear that the Fed must stay the course when it comes to rate hikes as long as inflation is high.

He believes that a rate decrease is favored by many experts who feel inflation has been largely brought under control. The Fed faces other challenges, including a potential credit crunch and the current debt ceiling crisis. New York Fed President John Williams has steered away from reducing interest rates this year due to the banking sector’s troubles.

“Job one for us has got to be to get inflation back under control,” Bostic told Bloomberg in February, following one of the Fed’s rate hikes. “And I’m going to do all I can to see that we do that.”

Bostic said his view is informed by economic data, such as whether it points at a robust or cooling economy. A rate decrease is favored by many experts who feel like inflation has been largely brought under control. Jeremy Siegel, a financial profession at University of Pennsylvania’s Wharton School of Business, said that stock market returns could jump 15% or more this year if the Fed cuts rates, following a tumultuous 2022. But if the Fed doesn’t slash interest rates, the path ahead could be tougher, Siegel said.

The Fed faces a few other challenges along with inflation, including a potential credit crunch amid slower lending activity at banks as well as a series of bank failures in the first few months of 2023. Additionally, it must contend with the current debt ceiling crisis, in which the White House and Congress haven’t agreed yet on a cap for the amount of money the U.S. government can borrow to meet its financial obligations.

New York Fed President John Williams said earlier this month that he’ll be watching how the banking sector’s troubles affect the U.S. economy, and steered away from reducing interest rates this year.

“I do not see in my baseline forecast any reason to cut interest rates this year,” Williams said, according to Bloomberg.