Atlanta Fed President Bostic lauds resilience of U.S. economy

This week, Federal Reserve Chair Jerome Powell had big news for the economy: A) The Fed is continuing its pause in interest rate adjustments and B) he forecast three rate cuts in 2024.

That said, we’re not done getting to the Fed’s 2% annual inflation target, and the when and how of it are still up in the air. 

Raphael Bostic, president of the Atlanta branch of the Federal Reserve, joined “Marketplace” host Kai Ryssdal to talk about how rate cuts might play out and how the Fed comes to these decisions.

An edited transcript of their conversation follows.

Kai Ryssdal: So were you guys on Zoom this week for the meeting? Or were you in the room?

Raphael Bostic: I was in the room. So yes, I was there. 

Ryssdal: So give me a sense, would you, because it seems like you are oh so very close to getting done what you wanted to get done. What was the mood? 

Bostic: Well, mood, I’m not good about reading moods, but I’ll tell you that I went to the meeting pleased with how the economy had progressed. And really looking forward to just making it clear that we are done, or very close to done, with thinking about increasing rates and want to really just let the economy continue to work and get inflation back down to 2%. 

Ryssdal: OK, so with that as the setup, let me play you a piece of tape from this morning. It’s your colleague, John Williams from the New York Fed, he was on CNBC. And here’s what he had to say:

“Well, first of all, I, we aren’t really talking about rate cuts right now. We’re very focused on the question in front of us, which, as Chair Powell said, the question is, have we gotten monetary policy to a sufficiently restrictive stance in order to ensure that inflation comes back down to 2%? That’s the question in front of us.” 

Ryssdal: So far be it for me to pit one regional Fed president against another or the chair, for that matter. But it does kind of seem like the markets and the mood have taken a turn to where you guys are not only done raising rates, but you’re looking at cutting really soon and President Williams was trying to walk back what the market took out of the chairman’s press conference the other day?

Bostic: Well, I’m actually where John is on this. You know, I, I’ve been saying for a long time, we need to be willing and comfortable being higher for longer. And for me, even with the great progress that we’ve seen on inflation, and it’s come down a lot and faster than I expected. For me pulling forward, the time when we would consider dropping rates is really still Quarter 3 of 2024. That’s in my outlook, that’s what I have in mind if inflation proceeds as I expect it will. So yeah, there’s plenty of time. I, I’m not looking for anything or expecting anything imminent to happen. We’re just going to let the economy keep running and make sure that inflation is well on its way to 2%. 

Ryssdal: Does it trouble you that the stock market and the bond market don’t believe you?

Bostic: Well, those aren’t my metrics. So my metrics are inflation and maximum employment, and the unemployment rate below 4% is a very positive sign. And inflation continuing to drop is important. You know, for me, I think what we’ve seen really over the last year or so is financial markets expecting inflation to move a lot faster than I did. And as a consequence,  they’re projecting actions that come with that kind of outlook. And we’ll just really have to see what happens. You know, I, I think in the last year, I thought the economy was going to proceed such that inflation would come down a lot slower than it has. It’s about half a percentage point lower than I expected. But you know, financial markets were talking about us cutting last year or this year, and that didn’t come to pass either. So we’re kind of in a push on this. And we’ll see sort of where things progress in the early part of 2024.

Ryssdal: How do you make sense then, of how we are told consumers are feeling about this economy, which is not great, and the metrics that you all look at? I mean, every time that a regional Fed president or the chair or a member of the Board of Governors goes out to make a speech, you put the headline numbers in your speeches, and those are justifiably good and worth crowing about, but people just don’t feel good. And I guess I hate to ask the ‘vibe session’ question, but there’s a vibe out there the economy’s not good. What do you do with that? 

Bostic: Well, you know, I was a psychology major in college. I do think about this a bit, I think there are really two things going on. The first is that even though the rate of inflation is coming down, prices haven’t come down. And so when people go to the grocery store, they still remember when they used to pay $1 less for a dozen of eggs, or all those sort of goods, and that memory lingers long. And then the second thing is, you know, when inflation spiked, wages didn’t spike with them. And so many workers, a lot of my staff even, knew that they were falling behind, and were worried about that. And that catch up is happening, right? Wage growth now is greater than inflation. But I don’t think people feel like they’ve caught up all the way and that’s just going to take some time. And once we get there, I think we will start to see sentiment improve. But these things don’t happen overnight. And we’ll really have to just let things work and see where we are in six, in 12 months from now. 

Ryssdal: When you and I spoke in May of this year, and one of the things you said was, we are at the beginning of the hard part of taming inflation. So, I imagine this is now we’re smack in the middle of the hard part, holding them while people are calling on you to cut.

Bostic: This is where you know, I use the words patient, cautious and resolute. And this is the time when we’ve got to be resolute, and make sure that we don’t jump to conclusions and declare victory. Look, there’s still a ways to go. And you know, headline, inflation is a little above 3%, core is above 3%. And our target is 2%. So we need to really make sure that we’re well on our way. And when we do that, then I’ll be feeling a lot better. But I don’t feel like we’re there right now. 

Ryssdal: If somebody had told you back in the beginning of this year, when things were, you know, grim, and the recession was right around the corner, if they told you that we’d be at the end of 2023, with the economy growing at 5% in Q3 and unemployment at 3.7%, would you believe them?

Bostic: Oh, well, I would have been very happy and said, “I’ll take it.” You know, I’ve never had an outlook, a recession in my outlook. So I’ve always thought that the economy would be more resilient than what we’ve seen in historical cycles. But this economy has even exceeded my expectations of resilience, and I’m really grateful for that. You know, the return to the workplace by workers, the increase in labor supply and labor force participation, has just been a wonderful thing to watch. We’re getting reports that workers are even more productive while they’re there. And these are things that really bode well for us moving forward. And I’m hopeful they will persist as we get into 2024.

Ryssdal: I don’t want to get too grandiose about this, but this episode in this economy, the last few years, is going to be one of those things that are in the economic history books, just like Paul Volcker and the late ‘70s, early ‘80s are. And I guess, I wonder whether there’s a sense within the Fed, broadly speaking all the regional presidents as well, that, and this is gonna sound really corny, but like, history is watching, right? This is gonna be in the history books.

Bostic: Well, history is always watching. And, you know, in this job, we know that there are so many people who are watching what we do and commenting, critiquing, assessing, and that really, like, comes with the territory. For me, I think the thing that people should know is that we’ve never lost sight of what our targets are, what our objectives and our mission. And we’ve wanted every day to really make sure that we were doing all we can to keep this economy strong by creating a foundation that leads to people being able to make long-term plans and investments in their businesses and in themselves to be maximally productive. And this was a hard one. There wasn’t really, or there hasn’t been, a textbook on how you do policy through a pandemic. But you know, with the help of all of our contacts, and I got a great staff in our building, I think we did pretty, we’ve done pretty well so far. And we’re going to have to continue to do that to get all the way back down to hitting our target. 

Ryssdal: You know what’s really funny, and I hate to hoist you on your own petard here, but you’re speaking there in the past tense. “This was a hard one, we did well,” and then you change course, and you’re like, oh no, I gotta say it’s in the present tense, right?

Bostic: Yeah, well, you know, there’s a journey. And I remember the depths of this. And I really don’t feel like we’re in the depths of this right now. And so in that sense, we are past a whole host of, a whole bunch of turbulence. But we still are not all the way there. And, you know, the first thing I say in pretty much every discussion of this, even in this building, the mission is not accomplished, we’re not done. We’re not at 2% and we’ve got to stay resolute and focus on the fact that we got to do what we have to to get all the way there.