Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta.
Christopher Dilts | Bloomberg | Getty Images
Interest rates may rise earlier than expected, as the economy recovers more quickly than expected from the havoc of Covid-19, Atlanta Federal Reserve Chairman Raphael Bostic said on Monday.
While most of his colleagues do not see an increase in rates coming at least until 2023, Bostic said he thinks the emergency measures the Fed has taken to fight the pandemic could begin to be reversed in the next two years, if not sooner.
“I think there is some possibility that the economy will come back a little stronger than some expect,” he said during a virtual question and answer session before the Rotary Club of Atlanta. “If that happens, I am prepared to support a pullback and recalibrate our accommodation a little and then consider changing the interest rate.”
“But I don’t see that happening in 2021. A lot would have to happen to get us there,” he added. “Then we will see 2022. Perhaps the second half of 2022 or even 2023, where that may be more at stake.”
At the December meeting, members of the Federal Open Market Committee presented their individual expectations for the coming years. The median expectation for the Fed’s benchmark loan rate was to remain in its current target range of 0% to 0.25% until 2023, with a long-term estimate of 2.5%.
Of the 17 FOMC members who submitted policy “points” that represent their forecast, none saw a likely rate increase in 2021 and only one indicated an increase in 2022. For the following year, three saw a single increase of 25 basis points, while one indicated 50 basic points higher points and even more one saw a movement of 100 base points, translating into a complete percentage point or the equivalent of four increases.
Fed officials have been very cautious about the variety of risks forecasts, and Bostic also noted that growth depends almost entirely on how quickly Americans are vaccinated and the coronavirus contained.
“All the economic consequences were due to how we responded to the public health crisis,” he said. “Making a prediction about this year is really a prediction of how well the vaccine will penetrate the population, so we are in a place where we don’t have to be so cautious about how we do our economic activity.”
Bostic said he will analyze three data points to guide his judgment on when the Fed can begin to reverse its crisis-era measures. In addition to near zero rates, the Fed expanded its balance sheet by more than $ 3 trillion and implemented a series of loan and liquidity programs, several of which ended in late 2020.
These metrics include temporary versus permanent job losses, the health of small businesses and consumer confidence. Replacing the three, however, will be the path of the virus and the success of efforts to control it, he said.