By Howard Schneider
WASHINGTON, Feb 20 (Reuters) – Full-year economic growth at 2.2% is “a pretty strong number” that is high enough to raise concerns about persistent inflation and likely require tight monetary policy to hold back the economy, Atlanta Fed President Raphael Bostic said on Friday.
“Our economy has remained remarkably resilient,” with growth in his view expected to accelerate to 2.4% this year, above what he considers the economy’s underlying potential. “What that means is that we have to worry about the implications for prices on a strong economy,” given inflation at around 3% is “a long way” from the 2% inflation target, Bostic said at an economic event in Birmingham, Alabama.
As a result he said it would be “prudent” for the Fed to keep interest rates high enough to hold back the economy and put downward pressure on inflation that has shown little progress in recent months.
Bostic retires this month and attended his last Fed meeting in January, but his remarks point to an emerging debate at the Fed about whether the spread of AI technology is changing the economy’s underlying potential growth and the implications of that for inflation.
New data on Friday showed that while end-of-year economic growth was a weaker than expected 1.4%, the economy for the full year had expanded 2.2%, a figure Bostic said was particularly impressive given “all the turbulence we’ve seen, with the disruptions in trade relationships, and the uncertainty around where policy will land.”
It is also above what Bostic feels is the economy’s underlying annual growth potential of about 1.8%, a figure that also represents the median long-run growth outlook of Bostic’s colleagues.
Growth well above that likely feeds inflation, Bostic said, and is an argument for not cutting interest rates. By contrast new Fed chair nominee Kevin Warsh has argued that a coming productivity boom will allow the economy to grow faster without generating inflation.
(Reporting by Howard Schneider; Editing by Aurora Ellis)
Comments