In an interview with Steve Liesman, Fed President Raphael Bostic said that even in the event of a recession, it would be inappropriate to raise rates even in the event of a recession. While Bostic is not a voting member at this time, his word still carries weight.
BOSTIC’S COMMENTS
Bostic told his audience that taming inflation is more important than the potential for economic fallout. “Inflation is job number 1.” Bostic even said that he wouldn’t be opposed to an additional hike, rather than a rate cut. This, despite the Fed’s longest streak of consecutive rate hikes in history.
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BOSTIC’S ASSESSMENT OF THE ECONOMY
Bostic said that the economy is still very strong, that the labor market is still “extremely tight” and that consumers have continued to remain in control, leading Bostic to believe that a recession is less than likely from here.
BOSTIC’S PRAISE OF THE FED
Despite all of his doomerism, Bostic praised the work of the Fed thus far. After ten consecutive rate hikes since March of 2022, headline inflation continues to fall month after month. The most recent CPI reading shows the first headline number below 5% in two years — and Bostic noted that less than half of the overall items were above 5% on an annual basis. Additionally, recent jobless claims and PPI numbers back the notion that inflation is falling.
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ANALYSIS
Bostic’s comments are a sign that the Fed continues to walk the line and “read the script” on its fight against inflation. Even in the face of a potential recession, the Fed is not willing to back down from its efforts to bring inflation under control. This is a risky strategy, but it is one that the Fed believes is necessary to protect the long-term health of the economy.
It remains to be seen whether the Fed will be successful in its efforts to tame inflation without causing a recession. However, Bostic’s comments suggest that the Fed is prepared to do whatever it takes to achieve its goals.
IMPLICATION FOR INVESTORS
Bostic’s comments are likely to have a significant impact on investors. Bearish traders will likely welcome the Fed’s commitment to fighting inflation. However, investors who are worried about a recession may be concerned about the Fed’s willingness to risk a recession in order to bring inflation under control.
The market continues to expect at least one rate cut in 2023 — as well as a pause in the hiking of rates. Thought Fed President Bostic’s word won’t count as a vote — this certainly threatens that narrative.
Overall, Bostic’s comments are a sign that the Fed is serious about its commitment to fighting inflation. This is a risky strategy, but it is one that the Fed believes is necessary to protect the long-term health of the economy. It remains to be seen whether the Fed will be successful in its efforts, but Bostic’s comments suggest that the Fed is prepared to do whatever it takes to achieve its goals.
