(Reuters) - The Atlanta Federal Reserve Bank’s new president, Raphael Bostic, said on Tuesday that recent weak inflation probably means labor markets are still healing from the 2007 to 2009 financial crisis, and he would want “clear evidence” prices were firming before committing to another interest rate increase.
Bostic did not close the door on the need for another rate hike this year, repeating, as have several of his colleagues, that he is keeping an “open mind” about a December hike hoping the inflation lull passes. With businesses in his district reporting rising wage pressures and his staff expecting inflation to firm, Bostic said he was “feeling pretty comfortable” that a December increase could in fact proceed.
But with more than a month until the Fed next meets, “the jury is still out. ... I am mindful that from an inflation perspective we have undershot our (inflation) target for quite some time,” Bostic said in remarks prepared for delivery at an event in Atlanta. They were his first extended remarks on monetary policy since taking office.
“That is something I am really paying attention to, and if we don’t start to see a turnaround it will reshape my view of the appropriate path,” he said.
Bostic does not have a vote this year on the Fed’s policy-setting committee. But his comments place him among a growing group of Fed officials who say they want to see clearer signs that inflation will build to the Fed’s 2 percent target and that recent weakness does not involve a more permanent problem.
Bostic said he is not convinced by the arguments of some of his colleagues who feel that forces like technology and the structure of the global economy are holding down prices in a dynamic that may prove persistent and hard for the Fed to combat.
Instead, he attributed it to a more conventional cause -- a labor market still recovering from the crisis. As evidence, he pointed to the weak pace of wage increases, and an edging up in recent months in labor force participation rate among workers in the prime 25-to 54-year-old age group.
That slack in the labor market, he felt, should fix itself as employment and economic growth continue.
“There remains some residual amount of slack in the labor markets,” Bostic said. “This, in turn, persuades me that the current stance of monetary policy is not overly easy for the circumstances.”
Reporting by Howard Schneider in Cleveland; Editing by Leslie Adler