BATONROUGE, La. (Reuters) – Falling stock prices, uncertainty around global trade and other possible “headwinds” are not enough yet to throw the U.S. economy off course or force the Fed to alter its intent for continued gradual rate increases, Atlanta Federal Reserve bank president Raphael Bostic said on Tuesday.
Speaking as equity markets dropped sharply over global concerns and weak corporate earnings, Bostic said he felt the central bank should still raise rates at least “a few” more times until it reaches a level that is neither encouraging nor discouraging investment and spending.
“Unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate,” said Bostic, a voting member of the Fed’s policy committee this year who had remained non-committal about a possible December rate increase.
His remarks on Tuesday point to an optimistic read on the economy and support for the Fed pushing rates to a neutral level, then reassessing. He has in the past estimated neutral to be around 2.75 percent, allowing room for two more rate increases.
“There is little reason to keep our foot on the gas pedal,” Bostic said, noting that the 4.2 percent rate of gross domestic product growth recorded in the second quarter, combined with third quarter growth expected at around 3.5 percent, “may suggest that the economy is shifting into a higher gear.”
Throughout the current near decade-long expansion, growth has averaged 2.3 percent.
Recent selloffs in the stock market have caused investors to trim their expectations of a December rate increase. Data from the CME Group show traders shaved the probability around a December hike by a full 10 percentage points after equity markets fell another full percentage point.
But Bostic said he felt that strong household finances, and businesses that have so far proved largely resilient to trade tensions, means the economy can hold up under the pressure.
“At the moment, there are headwinds in the form of tariffs, trade restrictions, and market volatility, each with the potential to disrupt economic activity and materially slow growth,” Bostic said in remarks to an economic development group at Louisiana State University. “After digging through the data, consulting our economic models, and gathering a Main Street perspective from our extensive network of business contacts, I come away with the sense that economic growth is on a strong trajectory.”
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)