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Fed’s Bostic, Kashkari Say Higher Rate Hikes Needed To Fight Inflation In Robust Economy

Fed’s Bostic, Kashkari Say Higher Rate Hikes Needed To Fight Inflation In Robust Economy

Bostic Kashkari rate hikes

A stronger-than-expected labor-market report in January shows the U.S. economy is robust and the central bank may need to keep raising interest rates higher than expected to fight inflation, according to Raphael Bostic and Neel Kashkari, presidents of the Atlanta and Minneapolis Federal Reserve banks.

January’s strong payroll report suggests the need for rates to go higher, but the January number could have been an anomaly and policymakers will be studying them, Bostic said Monday during a Bloomberg News interview.

The January jobs report showed that the overall unemployment rate fell to 3.4 percent vs. the 3.6 percent estimate — the lowest jobless level for 53 years, according to the Department of Labor.

The unemployment rate for Black people fell to 5.4 percent.

January nonfarm payrolls increased by 517,000 vs. the 187,000 market estimate. Sectors leading the job growth included leisure and hospitality, professional and business services, government and health care.

Wages also posted solid gains in January with average hourly earnings increasing 0.3 percent, up 4.4 percent from a year ago.

When wages increase, a common theory is that a wage-price spiral drives inflation. Workers have more income, consumer demand increases, the new demand pushes prices up, and higher wages are needed to match the price increases, creating a cycle that sustains inflation.

The Fed’s main job is controlling inflation and the central bank may have more work to do, Bostic said.

If the strong economy persists, “I would expect that that would translate into us raising interest rates more than I have projected right now,” Bostic said.

The Federal Open Market Committee raised its benchmark rate by a quarter percentage point to a range of 4.5-to-4.75 percent last week — a smaller hike than December’s half-point increase and four 0.75-point hikes before that.

Bostic said he sees rates reaching 5.1 percent and staying there through 2024 but a higher peak could happen.

Kashkari has emerged as one of the more hawkish Fed officials in the fight against high inflation, Bloomberg reported.

“Right now I’m still at around 5.4 percent,” Kashkari told CNBC in an interview Tuesday.

“I too was surprised by the big jobs number. It tells me that so far we’re not seeing much of an imprint of our tightening to date on the labor market,” Kashkari said. “There’s some evidence it’s having some effect but it’s pretty muted so far. I haven’t seen anything yet to lower my rate path.”

“We need to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy,” he said. “ We can always back off so we’re having to let inflation guide policy rather than our models guide policy.”

Photos: Minneapolis Fed President Neel Kashkari attends the Yahoo Finance All Markets Summit, Oct. 10, 2019 in New York. (Evan Agostini/Invision/AP) / Atlanta Fed President Raphael Bostic
kicks off the 2022 Technology-Enabled Disruption conference (Media relations @AtlantaFed)