Raphael Bostic says Fed needs to ‘stay the course’ despite lower wage gains

Atlanta Federal Reserve President Raphael Bostic said Friday that December’s jobs report, with its slowdown in wage increases and better-than-expected employment growth, doesn’t change his view on monetary policy.

The central bank official said he still sees interest rates rising, up past 5% for the Fed’s benchmark funds rate, where he sees it staying for a prolonged period.

“It doesn’t really change my outlook 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 continually slow from the strong position it was at in the summertime. This is just the next step in that.”

Nonfarm payrolls added 223,000 positions last month, and the unemployment rate fell to 3.5%, the Labor Department reported. That was slightly better than respective estimates for 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 inflation spiral gripping the economy for the past year and a half may be easing.

Still, Bostic said he expects another rate increase of either a quarter- or half-percentage point when the Fed releases its decision Feb. 1. The funds rate is currently targeted between 4.25% and 4.5%. Bostic is a nonvoting member this year of the rate-setting Federal Open Market Committee; he will vote again in 2024.

Open jobs still outnumber available workers by nearly 2 to 1, and wage growth is well above where it was before the Covid pandemic. Bostic added that he doesn’t think wages have been a key driver of the inflation that escalated in mid-2021 toward its highest level in more than 40 years.

“We’ve got to stay the course,” he said. “Inflation is too high. We need to reduce those imbalances so it moves more rapidly to our 2% [inflation] target.”

Fed officials at their December meeting expressed concern that the public might misinterpret the central bank’s move to a small rate hike — 0.5 percentage point from four straight 0.75 percentage point moves — as an easing in policy.

Bostic emphasized the Fed can’t “claim victory prematurely” and needs not only to keep pushing rates higher, but to keep them there.

“What I think is the important [point] is just to hold there and stay there and let that policy stance really grip the economy and just make sure that the momentum is fully arrested, so that we get to a place where demand and supply start to become more interbalanced and we start to see those pressures on inflation really start to to come down,” he said.

Bostic said he does not expect a recession to follow the Fed’s actions, and if there is one he sees it as “short and shallow.”