Fed's Bostic : Interest Rates 'Within Shouting Distance' of Neutral

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12/06/2018 | 10:26 pm

By Paul Kiernan

ATLANTA -- A member of the Federal Reserve's policy-making committee said Thursday the central bank should continue raising interest rates, though he advocated for caution given mounting uncertainty in the economy.

Federal Reserve Bank of Atlanta President Raphael Bostic said in a speech that he continues to believe interest rates should be raised to a "neutral" level that neither stimulates nor hinders the economy.

He didn't address his previous statements that the Fed should hold off on a widely expected rate increase at its Dec. 18-19 policy meeting, and he didn't take questions.

"I currently think we're within shouting distance of neutral, and I do think neutral is where we need to be," Mr. Bostic said. "I'm not seeing clear signs of [economic] overheating, nor am I seeing any indications of a material weakening in the macroeconomic data at the moment."

The remarks echo comments last week by Fed Chairman Jerome Powell, who said that rates are "just below" central bank officials' range of neutral estimates. The Fed's benchmark federal-funds rate currently sits in a range between 2% and 2.25%; policy makers estimate a neutral level to be anywhere from 2.5% to 3.5%.

A member of the rate-setting Federal Open Market Committee, Mr. Bostic said he continues to see risks that the economy is overheating, noting that the 3.7% unemployment rate is below what most economists believe is sustainable. Past periods of ultralow unemployment have been followed by recessions, he said.

At the same time, "modest" wage growth and the continued entry of workers into the labor market are signs that "there may be more slack in labor markets than implied if we just focused on the unemployment rate," he said. Inflation has softened in recent months. Escalating trade tensions and a rise in volatility in financial markets have added to investors' concerns.

"The U.S. economy has been beset by increasing uncertainties that may slow its growth," Mr. Bostic said.

As a result, he said, the Fed should adopt a strategy that seeks to balance the danger of leaving rates so low that they fuel overheating with the risk of raising rates so much that the economy tips into recession.

"For me, the answer is to proceed cautiously, with a keen eye on the data," Mr. Bostic said. "This will particularly be the case over the next six to 12 months, as I look for signals in the data that might confirm or refute my current position."

Dallas Fed President Robert Kaplan urged a similar approach Thursday in a television interview on CNBC.

"At this stage, you're going to hear me be much more cautious and counsel patience," Mr. Kaplan said, contrasting that with his previous view that the Fed should be raising rates. "I think there's more uncertainty, global growth's decelerating. I'm seeing interest rates showing some weakness. It's too soon to say what to make of it. But I think one of the key tools we have with [the] central bank is patience, and I think we ought to be using that tool."

Write to Paul Kiernan at paul.kiernan@wsj.com

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