Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta.
Christopher Dilts | Bloomberg | Getty Images
Interest rates could rise sooner than expected, as the economy recovers faster than expected due to Covid-19 damage, Atlanta Federal Reserve Chairman Raphael Bostic said on Monday.
While most of his colleagues do not see a rate hike until at least 2023, Bostic said he believes the Fed’s emergency measures to combat the pandemic could begin to be lifted in the next two years, if not sooner.
“I think there’s a chance the economy will come back a little stronger than some expect,” he said during a virtual question and answer session before the Atlanta Rotary Club. “If this happens, I am prepared to support the withdrawal and recalibration of part of our accommodation and then consider moving the policy rate.”
“But I don’t see this happening in 2021. A lot has to happen to get us there,” he added. “Then we’ll see until 2022. Maybe in the second half of 2022 or even in 2023, where there might be more at stake.”
At the December meeting, members of the Federal Open Market Committee set out their individual expectations for the next few years. The median expectation for the Fed’s reference lending rate was to stay in the current range of 0% to 0.25% until 2023, with a longer-term estimate of 2.5%.
Of the 17 FOMC members that presented political “points” that represent their forecasts, none saw an increase in the likely rate in 2021 and only one indicated an increase in 2022. For the following year, three recorded an increase of 25 percent. basis points, while one indicated 50 higher points and another saw a movement of 100 basis points, which translates into a full percentage point or the equivalent of four increases.
Fed officials have been largely cautious about the variety of risks to the forecasts, and Bostic also noted that the increase is almost entirely at the mercy of how quickly Americans are vaccinated and the contents of the coronavirus.
“All the economic consequences were a function of how we reacted to the public health crisis,” he said. “Making a forecast about this year is really at its core a forecast of how well the vaccine will penetrate the population, so we are in a place where we do not have to be so careful about how we conduct the economic activity . “
Bostic said he would look at three data points to guide his judgment as to when the Fed could begin withdrawing from the crisis. In addition to near-zero rates, the Fed expanded its balance sheet by more than $ 3 trillion and implemented a series of lending and liquidity programs, several of which were completed by the end of 2020.
These values include temporary versus permanent job losses, the health of small businesses and consumer confidence. However, overcoming all three will be the path of the virus and the success of its control efforts, he said.