The US central bank’s effort to cool inflation is still incomplete, according to President Raphael Bostic, Federal Reserve Bank of Atlanta.
Bostic said in a chat with students of Georgia Tech that inflation was still high and needed to be brought down to the 2% target of the Federal Reserve. The current pace of bringing down inflation is far from the goal.
Bostic said they have work to do and figure out how fast they must move the monetary policy to arrest inflation. This year Bostic did not vote on the monetary policy.
Fed officials are hiking interest rates aggressively to tame the rising inflation, which is the highest in four decades. They said they would keep up the pressure even if it meant pain to the public.
In the last two meetings, Federal Reserve raised rates by 75 basis points on each occasion, and chair Powell said that another hike of the same size is possible in the next meeting on September 20-21.
The economy has been sowing mixed readings recently. Some sectors, like housing, are showing signs of cooling while the labor market is still robust. He said that the fed is trying to bring down inflation without causing job losses even though the economy could be at risk.
Recession Risks
Bostic said that by bringing down demand, there is a risk of slowing the economy. When the economy does not grow, momentum gets affected, and one gets into a situation that could be called recessionary.
Bostic also mentioned that the Federal Reserve endeavors to shrink the balance sheet, which is currently at $8.8 trillion. This is done by selling off Treasuries holdings and securities backed by mortgages. The monthly sell-off is roughly $ 95 billion or $ 1 trillion annually.
According to Bostic, the nature of MBS is that it matures slowly. The process would be to increase these securities in eth Federal reserve’s holdings.
