May 10, 2022 - Economy

Fed's Bostic: Signs of progress on labor, supply logjams

Atlanta Fed President Raphael Bostic

Atlanta Fed President Raphael Bostic. Photo: Elijah Nouvelage/Bloomberg via Getty Images

The big question facing the Federal Reserve in the coming months is just how far to raise interest rates to try to constrain inflation without causing a downturn. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, discussed that and other challenges in an interview with Axios.

  • The conversation took place Monday afternoon on the sidelines of the Atlanta Fed's Financial Markets Conference — held in person this week for the first time in three years — in Amelia Island, Fl. Below are lightly edited excerpts.

On the path of monetary policy ahead, and the need to get interest rates back to the "neutral" rate that neither stimulates nor slows the economy:

  • "My sense is people understand that we are going to try to move rates in a consistent, purposeful way to try to get away from maximum accommodation and get to a place that's closer to neutral. It's about how far past neutral we need to go."
  • "For me, I think I'm open to just about any possibility. We've been getting some signs that say that the supply/demand balance might narrow from supply side development, which would mean that the amount we have to push on the demand side can be less."
  • "We don't have to actually know the answer to that right now, so I'm really going to stay focused on the journey to that neutral zone, and then use the time to really get a sense of how much more might be needed."

On the signs that supply logjams are easing:

  • "We talk to business leaders around the district, and some of the trucking companies in particular have told us that they don't have excess demand ... [and that they're] now accepting pretty much any orders for the use of their trucking capacity, whereas before they were turning down three-quarters of the requests for their capacity."
  • "I have some other businesses who are telling me that their backlogs for orders have been worked through, and they're now much more in a normalized space where they're carrying slightly elevated inventory, but they're not worried about 'will the product be there?'
  • "Those signs are positive, and we'll have to see if they broaden, or if other developments happen such that it retrenches."

On the health of the labor market:

  • "Businesses still say that it's hard to find workers and that there's a lot of churn. But their tone has changed a bit, in the sense that they're saying it's not getting worse. They're also saying that in some segments they're starting to see people come back."

On what he will be watching to determine how much more to raise interest rates:

  • "The frontline thing to watch is what's happening with inflation. Inflation is far from our target and it needs to get closer to our target. So we need to do all that we can to make that happen.
  • "The second thing will be what's happening in terms of supply side changes. Are we seeing easing of supply chain issues? Are workers coming back into the labor force in ways that firms can more easily match the heightened demand for their products?"
  • "If those things happen, I think there will be less pressure on us to move far beyond the neutral space ... But there's also the possibility that the war is more protracted and that things happen, in which case we may need to move more beyond that space."

On whether the Fed can bring down inflation without causing a recession:

  • "My goal is while I'm in this chair to not have any other recessions. So, I'm going to do all I can to make sure that we don't do that."
  • "This is a very volatile time ... So, to get a fully soft landing — not a soft-ish landing — is going to be hard. I recognize that, but just because it's hard, doesn't mean I'm not going to try to make it happen. And that's really what I'm going to stay focused on over the next several months."
Go deeper