Bostic Says He'd Back December Fed Hike If Economy Stays Healthy

(Bloomberg) -- Federal Reserve Bank of Atlanta President Raphael Bostic said continued strength in the U.S. economy would make him comfortable with raising interest rates in December.

In an interview with Bloomberg Friday following the release of September employment data, Bostic said the drop in the number of U.S. workers on payrolls last month probably reflected the disruption caused by hurricanes, masking a more positive underlying trend.

“We knew the hurricanes were really going to give a hit to some of these top line numbers,'' Bostic said after a speech in Austin, Texas. “The numbers underneath are actually quite interesting. They suggest some of the strength we were starting to see at the beginning of August, the storms didn't completely wash them out.”

Investors lifted the chances of a December Fed rate hike to 80 percent after Labor Department data showed 33,000 workers left U.S. payrolls in September, unemployment sank to 4.2 percent, and average hourly earnings increased 2.9 percent year-on-year.

Bostic, who votes on monetary policy in 2018, said he's “definitely in a wait-and-see mode.'' 

‘Wait and See'

“If we continue to see strength and that robust energy in the economy, I will be comfortable with a conversation about increasing rates. But we have to wait and see about those things,” he said.

Fed officials in September announced they would slowly start unwinding their $4.5 trillion balance sheet this month and forecast another 2017 rate increase following hikes in March and June, sticking with a plan for gradual policy tightening despite concerns over recent low inflation readings. The Fed's preferred gauge of price pressures was 1.4 percent in August and has been under its goal for most of the last five years.

Bostic, who became head of the Atlanta Fed in June, said he wasn't worried by weaker inflation expectations.

“We have seen a slight decline, I think, but nothing that would suggest there has been something fundamental that has changed in how consumers are viewing the marketplace,'' he said.

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net.

To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Brendan Murray