Bostic Expects One More Quarter-Point Hike And Then A Long Period Of Holding

According to Atlanta Federal Reserve President Raphael Bostic, the central bank will approve one more interest rate increase after seeing how economic data is impacted by policy tightening.

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Bostic said during a live interview with CNBC's "Squawk on the Street" that one more move should be enough to evaluate how our policy is affecting the economy.

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The Federal Open Market Committee is likely to increase rates by 0.25 percentage points on May 2-3.

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The federal funds rate would rise to 5%-5.25%, the highest since August 2007, if a majority of the committee agrees with Bostic, who is a non-voting member this year.

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According to Bostic, the FOMC can watch inflation, employment, and the broader economic picture as the lags that come with monetary policy are worked through.

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If the data come in as expected, we'll be able to hold there for quite a while. "Once we reach that point, the economy will be monitored for the remainder of the year and into the year 2024," he said.

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There is, however, disagreement among the markets about the Fed's stance.

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By the end of 2023, CME Group estimates, a half percentage point cut will be introduced as the economy slows. There is an 87% chance that the Fed will increase next month, pause for a few months, and then cut again by half a point by 2025. Bostic said inflation remains too high for cuts to be considered.

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It's mainly about ... inflation returning to our 2% target. It seems as though the question is who is right on this?" he said. “I don't think it's going to return as quickly as some markets suggest. It's not going down below 312, which is still well above our target of 2%.”

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According to him, the economy does not appear to be heading into recession, despite Fed economists warning that a mild contraction is likely shortly.

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Despite the recent problems in the banking industry that will trigger the recession, Bostic believes the tight monetary policy will persist.

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Despite noting the risk of a "shoe dropping," he said that the Federal Reserve would remain vigilant "to ensure we are prepared" in his district.

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