economy is healthy and shows little sign of an imminent recession, and can withstand higher interest rates, St. This story has been corrected to say that Esther George is president of the Kansas City Federal Reserve, not the Cleveland Fed.WASHINGTON - The U.S.
As a result, an inflationary psychology hasn't taken hold of most consumers, as it did then, and the central bank won't have to increase rates as much. Unlike the early 1980s, when sharp Fed interest rate increases pushed unemployment above 10%, the Fed has more credibility now as an inflation fighter, Bullard said. economy has been in recession for the last two quarters,” Bullard said.īullard also disagreed that the economy needed several years of high unemployment to get inflation back under control, a view articulated several weeks ago by former Treasury Secretary Larry Summers. Businesses and other employers also added 2.7 million jobs during that time, a robust total that reflects an optimistic outlook among businesses. But the official definition of a recession, set by the National Bureau of Economic Research, looks at a much broader range of data to determine whether a downturn has occurred.īullard said that other measures of the economy, such as a broad measure of workers' and business' incomes, suggest the economy may have expanded in the first six months of this year. Two quarters of shrinking output would meet one rule of thumb for a recession. The economy contracted in the January-March quarter and real-time data trackers, such as one maintained by the Atlanta Federal Reserve Bank, suggest it did so again in the April-June quarter. The robust figures contrast with signs of a softening economy, from falling home sales to declining factory production to slower consumer spending. “The tremendous momentum in the economy to me suggests” that the Fed could implement such an increase “and not see a lot of protracted damage to the broader economy,” Bostic said on CNBC on Friday.Īlso on Friday, the government's jobs report showed employers added 372,000 jobs, a healthy increase, while the unemployment rate remained at 3.6% for the fourth consecutive month, slightly above the five-decade low reached just before the pandemic.
The Fed is still getting away from boosting the economy and moving toward a more neutral stance, Bostic said, "which is quite a different thing than formally restricting the economy.”īostic said he also supports a 0.75 percentage point rate increase later this month, as have other Fed officials such as Fed governor Christopher Waller. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said Monday that large rate increases are necessary because the Fed's rate is currently at a level that stimulates growth, even though an overheating economy has touched off inflation. The Fed typically moves rates in quarter-point increments, but Chair Jerome Powell has said the Fed wants to move “expeditiously” to a level of about 2.5% to 3%, which would neither stimulate nor restrain growth. George noted after just four months of Fed rate increases, “there is growing discussion of recession risk, and some forecasts are predicting interest rate cuts as soon as next year.” Those concerns suggest the Fed is lifting interest rates “more quickly than the economy and markets can adjust,” she added. George was the only Fed policymaker to dissent from the Fed’s June rate hike, out of concern that it was too large. policy changes transmit to the economy with a lag, and significant and abrupt changes can be unsettling to households and small businesses as they make necessary adjustments.”
“I’m certainly sympathetic to the view that interest rates need to increase rapidly, recognizing that current rates are out of sync with today’s economic landscape,” she said, addressing a labor conference in Lake Ozark, Missouri. Separately, Esther George, president of the Federal Reserve Bank of Kansas City, sounded a more cautionary note in a speech Monday, in which she suggested the Fed’s large rate hikes could prove disruptive. Its rate is currently in a range of 1.5% to 1.75%, after a 0.75 percentage point hike at its June meeting, the largest since 1994. But they also carry the risk of tipping the economy into a downturn.Ĭonsumer prices rose 8.6% in May compared with a year ago, and a government inflation report Wednesday could show that they've ticked higher.īullard also said he currently supports a 0.75 percentage point increase in the Fed's benchmark short-term interest rate at its next meeting later this month. Higher rates limit the ability of consumers and businesses to borrow and spend, which can cool growth and inflation.
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