Atlanta Federal Reserve President Raphael Bostic said on Friday that December’s jobs report, with its slowdown in wage gains and better-than-expected employment growth, does not change his view on monetary policy.
The central bank official said he still sees interest rates rising, up above 5% for the Fed’s benchmark rate, where he sees it staying for an extended period.
“It doesn’t really change my view at all,” Bostic told CNBC’s Steve Liesman during a live interview at a conference in New Orleans. “I’ve been looking for the economy to steadily decline from the strong position it was in over the summer. This is just the next step in that.”
Nonfarm payrolls added 223,000 jobs last month, and the unemployment rate fell to 3.5%, the Labor Department reported. That was slightly better than the respective estimates of 200,000 and 3.7%.
Perhaps more importantly, average hourly earnings rose just 0.3% for the month and 4.6% from a year ago, both below expectations and an indicator that the inflationary spiral that has gripped the economy for the past year and a half may be slowing.
Still, Bostic said he expects another rate hike of either a quarter or half a percentage point when the Fed announces its decision on Feb. 1. The fund rate is currently targeted at between 4.25% and 4.5%. Bostic is a non-voting member this year of the rate-setting Federal Open Market Committee; he will vote again in 2024.
Open jobs still outnumber available workers by almost 2 to 1, and wage growth is well above where it was before the Covid pandemic. Bostic added that he does not believe wages have been a key driver of inflation, which escalated in mid-2021 to the highest level in more than 40 years.
“We have to stay the course,” he said. “Inflation is too high. We need to reduce these imbalances so that it moves faster to our 2% [inflation] goal.”
Fed officials at their December meeting expressed concern that the public could misconstrue the central bank’s move to a small interest rate hike — 0.5 percentage point from four straight 0.75 percentage point hikes — as an easing of policy.
Bostic emphasized that the Fed cannot “claim victory too soon” and needs not only to continue to push interest rates higher, but to keep them there.
– What I think is the most important thing [point] is just to stay there and stay there and let the political attitude really grip the economy and just make sure that the momentum is completely stopped so that we get to a place where demand and supply start to become more balanced and we start to see those pressures on inflation is really starting to fall, he said.
Bostic said he doesn’t expect a recession to follow the Fed’s actions, and if there is one, he sees it as “short and shallow.”