Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta.
Christopher Dilts | Bloomberg | Getty Images
Interest rates could rise sooner than forecast as the economy recovers faster than expected from the severe damage from the Covid-19, Raphael Bostic, president of Atlanta Federal Reserve, said Monday.
While most of his colleagues don’t see a rate hike coming until 2023, Bostic said he thinks the emergency measures taken by the Fed to combat the pandemic could be reversed in the next two years, if not sooner.
“I think there is a possibility that the economy will bounce back a bit stronger than some expect,” he said during a virtual question and answer session for the Atlanta Rotary Club. “If that happens, I am willing to back down and recalibrate some of our accommodation and then consider shifting the policy rate.”
“But I don’t see that happening in 2021. A lot would have to happen to get us there,” he added. “Then we see 2022. Maybe the second half of 2022 or even 2023 is where that might be more in the game.”
During their December meeting, members of the Federal Open Market Committee presented their individual expectations for the coming years. The median expectation for the Fed’s reference credit rate was to remain within the current target range of 0% to 0.25% through 2023, with a longer term estimate of 2.5%.
Of the 17 FOMC members who submitted policy “dots” representing their forecast, none saw an interest rate hike likely in 2021 and only one indicated an increase in 2022. For the following year, three saw a single increase of 25 basis points, while one indicated 50 basis points points higher and another saw a movement of 100 basis points, which translates to a full percentage point or the equivalent of four increases.
Fed officials have largely been wary of the variety of risks to the forecasts, and Bostic also noted that the growth is almost entirely at the mercy of the speed at which Americans are vaccinated and the coronavirus contained.
“All economic impact is a function of how we have responded to the public health crisis,” he said. “ Making a prediction about this year is really at the heart of a prediction of how well the vaccine will penetrate into the population, so we’re in a place where we don’t have to be so careful about how we run our economic activities. “
Bostic said he will look at three data points to guide his judgment on when the Fed can reverse its measures in the crisis age. In addition to near-zero interest rates, the Fed expanded its balance sheet by more than $ 3 trillion and ran a series of credit and liquidity programs, several of which ended in late 2020.
Those statistics include temporary versus permanent job cuts, small business health, and consumer confidence. However, the path of the virus and the success of the attempts to get it under control will be all three, he said.