Fed's Bostic Says He's Comfortable With a December Rate Increase

(Bloomberg) -- Federal Reserve Bank of Atlanta President Raphael Bostic said an interest rate increase may be appropriate in December given clear signs of growing inflation pressures.

“I am at this point feeling pretty comfortable about the idea that we will be looking to move rates come December,” Bostic told reporters before delivering a speech to the Atlanta Press Club on Tuesday. If the U.S. economy continues “to see strong signs of economic growth with a pickup in inflation,” then he would support a hike.

The Federal Open Market Committee last week left rates unchanged while announcing plans to start shrinking its $4.5 trillion balance sheet. Investors increased their odds that the panel will raise rates in December after Fed officials reiterated forecasts for one more hike this year.

Delivering his first speech on monetary policy since joining the Fed in June, Bostic said in prepared remarks that he was keeping an “open mind” about the rate path this year. The former University of Southern California professor votes on monetary policy in 2018.

“What I have started to see are some positive signs” of rising inflation, Bostic told reporters. That includes a rising labor force participation rate, which indicates lessening slack in the work force, as well as reports of price pressures from businesses leaders.

“The contacts we have on the ground are telling us that they are starting to see far more pressure from a wage perspective and a pricing perspective,” he said. “I am starting to see those much more clearly and consistently than when I started in June.”

Harvey, Irma

In his prepared remarks, Bostic said hurricanes Harvey and Irma may cut up to 1 percentage point from third-quarter growth, with recovery and rebuilding efforts compensating for that in the fourth quarter. Overall, the U.S. expansion for the year is likely to be “slightly better than 2 percent.”

Projections for growth and inflation “could certainly be consistent with an additional rate hike this year,” Bostic said in his speech. Still, “I have an open mind on when the next step in the normalization process will be necessary.”

Bostic was assistant secretary at the U.S. Department of Housing and Urban Development from 2009 to 2012 during the Obama administration. He has focused his economic research on housing, and is the first black president of a regional Fed bank in the institution's 103-year history. The Atlanta Fed's district covers Alabama, Florida, Georgia and portions of Louisiana, Mississippi and Tennessee.

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, Randall Woods