Federal Reserve Bank of Atlanta President Raphael Bostic called for continued interest-rate hikes to above 5% ensure that inflation returns to the central bank’s target and doesn’t reaccelerate in a pattern similar to the 1970s.
“I think we will need to raise the federal funds rate to between 5% and 5.25% and leave it there until well into 2024,” Bostic said in an online essay. “This will allow tighter policy to filter through the economy and ultimately bring aggregate supply and aggregate demand into better balance and thus lower inflation.”
U.S. central bankers are waging their most aggressive action against inflation in a generation. Officials lifted their benchmark lending rate by a quarter of a percentage point at the start of February, bringing the target to a range of 4.5% to 4.75%. That was a step down from the half percentage-point increase at their December meeting, which followed four consecutive jumbo-sized 75 basis-point hikes.
“History teaches that if we ease up on inflation before it is thoroughly subdued, it can flare anew,” Bostic said in an essay on the Atlanta Fed’s website. “That happened with disastrous results in the 1970s.”
Referring to the policy-setting Federal Open Market Committee, he said, “After the FOMC loosened policy prematurely, it took about 15 years to bring inflation under control, and then only after the federal funds rate hit 20%. We don’t want a repeat, so we must defeat inflation now.”