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Atlanta Fed's Bostic: 50 basis point move in March 'not my preferred setting'

A top policymaker at the Federal Reserve said Monday that he supports pulling back on the central bank’s pandemic-era stimulus in the face of rising inflation, but said he would not favor the more aggressive interest rate increase that some on Wall Street are betting on.

Federal Reserve Bank of Atlanta President Raphael Bostic told Yahoo Finance that while he could support an interest rate hike in the Fed’s next policy-setting meeting on March 16, he is not calling for a 50 basis point increase.

“That's not my preferred setting [or] policy action for the next meeting,” Bostic said.

The Fed has not moved its target federal funds rate in increments larger than 25 basis points in recent memory. The last 50 basis point move hasn’t happened since May 2000. Still, Fed funds futures — the betting market for future Fed rate moves — were pricing in a 15% chance of a 50 basis point hike in mid-March.

Nonetheless, Bostic and his colleagues have messaged that raising short-term interest rates will be needed to increase borrowing costs and dampen demand that may be fueling an overheating economy. Bostic told Yahoo Finance he expects three rate hikes — representing 25 basis points each — through 2022.

ATLANTA, GA - AUGUST 4: Branch President Raphael Bostic poses for portrait in front of Atlanta, Georgias Federal Reserve Bank on August 4, 2020. (Photo by Eric Hart Jr. for The Washington Post via Getty Images)
ATLANTA, GA - AUGUST 4: Branch President Raphael Bostic poses for portrait in front of Atlanta, Georgias Federal Reserve Bank on August 4, 2020. (Photo by Eric Hart Jr. for The Washington Post via Getty Images)

Minneapolis Fed President Neel Kashkari, who has historically been cautious through Fed tightening cycles, told Yahoo Finance last week that inflation above his expectations likely warrants a rate increase in March.

But whereas Kashkari embraced the possibility that the Fed could “pause” after raising interest rates to “see how the economy evolves,” Bostic said it may not be until the second half of the year when inflation starts to fall below expectations.

On Friday, government data showed prices in the United States rising by 5.8% in December, the fastest pace of year-over-year growth seen in the Personal Consumption Expenditures Index since 1982.

“The goal here is to move us off of our emergency policy stance of maximum accommodation. And also try to push back on this inflation that has really elevated to levels that we haven't seen for quite some time,” Bostic said.

Bostic said another key policy tool for the Fed will be its nearly $9 trillion balance sheet. Since the depths of the pandemic, the Fed snatched up trillions in U.S. Treasuries and agency mortgage-backed securities to reinforce its commitment to keeping rates low.

The Fed began a conversation last week about how the central bank can start to shrink its asset holdings at some point later this year, a process it similarly attempted in 2017 — roughly two years after it had stopped its financial crisis-era policy of expanding its balance sheet.

“After we've moved away from zero [interest rates], I think it will be time for us to start reducing the size of the balance sheet,” Bostic said, adding that “we should be thinking about decreasing it faster than we have in the past.”

As one of 12 reserve bank presidents in the Federal Reserve system, Bostic participates in all of the Fed’s policy-setting meetings. But he is not one of the four rotating presidents who has votes on policy actions this year.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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