Fed has lifted interest rates high enough to tame inflation, Bostic suggests

The annual rate of U.S. inflation has tapered to 3.7% from a 40-year high of 9.1% in 2022, based on the consumer-price index.

The goal of the Fed is to reduce inflation to 2% a year. Bostic said, but the central bank doesn’t have to get there “tomorrow.”

Bostic also said he would be open to a “robust” debate about whether 2% is an appropriate inflation target, but it would have to wait until after the Fed achieves its goal.

The Fed in late September decided not to raise interest rates again, but left the door ajar for one more increase this year if inflation doesn’t continue to slow.

The leadership of the central bank, however, has become more divided about the next step.

Twelve of the Fed’s governors and regional bank presidents predict one more rate hike in 2023.

Seven even see no need for further action, including Bostic. They are especially worried that further rate hikes could tip the economy into recession.

Others such as Cleveland Fed President Loretta Mester and Fed Gov. Michelle Bowman favor a slightly more aggressive approach and believe the economy can handle it.

The central bank has raised U.S. interest rates steadily over the past year and a half to try to douse the raging fires of inflation. It’s lifted a key short-term interest rate to a top range of 5.5% from near zero in March 2022.

What senior Fed officials do agree on is that interest rates need to be maintained at high levels for an extended period to make sure inflation is brought fully under control.

Bostic said the Fed should leave rates at current levels for a “long time.” He is not a voting member this year of the Fed committee that sets interest rates.

“I am not in a hurry to raise, but I am not in a hurry to reduce either,” Bostic said.