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Bostic Says Fed Has ‘Work to Do’ With Inflation Long Way From 2%

·2 min read

(Bloomberg) -- Federal Reserve Bank of Atlanta President Raphael Bostic said the US central bank’s campaign to cool inflation was still not complete.

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“Inflation is high, inflation is too high and we have got to bring it down to our target,” he said Thursday during a classroom session with students at Georgia Tech in Atlanta, noting that the current pace of inflation was a long way from the Fed’s 2% goal.

“So we have got some work to do. We have got to figure out how fast we are going to move our policy to try to arrest that inflation and to wrestle it back down to 2%,” he said.

Bostic does not vote on monetary policy this year.

Fed officials are aggressively raising interest rates to cool the hottest price pressures in nearly four decades and have vowed they will keep at it despite the likely pain this will cause the public.

They raised rates by 75 basis points at their last two meetings and Chair Jerome Powell has said another move of that size could be on the table when they meet Sept. 20-21, depending on the data.

Recent readings on the economy have been mixed, with some sectors like housing showing signs of cooling while the labor market has been robust. He said the Fed was risking an economic downturn as it tries to seek a “soft landing” of getting inflation down without job loss.

Recession Risks

“When you bring demand down, that has the risk of slowing the economy down so that the economy stops growing, where it loses all of its momentum, and then you might get to a situation that some would describe as recessionary,” he said.

A soft landing is “a very hard thing to do. I think it’s only happened maybe once or twice in the history of this country. Ultimately that’s the best of all possible worlds.”

Bostic also discussed Fed efforts to shrink its $8.8 trillion balance sheet by allowing the runoff of its holdings of Treasuries and mortgage-backed securities as they mature. That monthly pace doubles to $95 billion in September, or roughly $1 trillion a year.

He noted that because MBS mature more slowly, the process would increase the concentration of these securities in the Fed’s holdings.

“We have got to think about how you reduce mortgages,” he said, adding the central bank would actively discuss its options. “We can’t just rely on maturation of these securities. We are going to have to actively try to sell them.”

(Updates with Bostic comment on MBS in final three paragraphs.)

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