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Fed's Bostic : Gradual Rate Rises Appropriate Over Next Several Years

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11/14/2017 | 07:23pm CEST
By Michael S. Derby 

Montgomery, Ala.--Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday the U.S. central bank should press forward with interest-rate rises.

But the official didn't offer any clues about the timing of when he would prefer the central bank to boost rates again, as he did in remarks in September. Mr. Bostic, one of the Fed's newest regional bank presidents, made his comments in a speech before a local group in Montgomery, Ala.

"I think it will be appropriate for interest rates to rise gradually over the next couple of years, as our policy position is still very accommodating rather than neutral," Mr. Bostic said. "How gradual that pace will be depends on the strength of the incoming macroeconomic data and what it implies for the economic outlook."

Mr. Bostic isn't currently a voting member of the interest-rate setting Federal Open Market Committee. It next meets in mid-December in a gathering that is widely expected to result in a quarter percentage point increase in what is now a 1% to 1.25% overnight target rate range. If the Fed follows through, it would be the third increase of the year.

Mr. Bostic said he believes the growth and hiring outlook supports a move higher in interest rates, but like many, he notes weak price pressures relative to the Fed's 2% price goal complicate that outlook.

"All of this anecdotal information convinces me that a reasonable economic forecast for the foreseeable future is more of the same: GDP growth continuing a bit above 2%, the unemployment rate in the low 4s, and modest increases in real wage growth," Mr. Bostic said.

The official said the economy is near full employment and has withstood the impact of the recent hurricanes. He said he doesn't expect to see the economy surge, and added possible tax law changes "could be one of the needle-movers on economic activity."

Mr. Bostic noted that inflation has "softened" over the course of this year.

"While I'm still holding to the view that the recent weakness largely reflects idiosyncratic noise, I'll be watching the next few inflation reports closely for signs of a pickup," he said.

Fed officials like Minneapolis Fed leader Neel Kashkari have warned that it is a big mistake to raise rates when inflation is so far short of the central bank's 2% target. But other Fed officials like Philadelphia Fed leader Patrick Harker have said they are still leaning toward a December rate rise, and others have made the case rates need to rise before the Fed hits its target so as not to allow the economy to overheat, which could force a more aggressive course of increases.

Write to Michael S. Derby at michael.derby@wsj.com

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