Fed's Bostic sees interest rate hike coming next year as inflation lingers

Atlanta Federal Reserve President Raphael Bostic said Thursday that he sees an interest rate hike coming later in 2022 as he forecasts a growing economy and lasting inflation pressures.

The central bank official told CNBC that he has “penciled in” a rate increase in “late third, maybe early fourth” quarter of 2022. The expectation puts him on the more hawkish side of Fed officials who are now about even on whether policy will tighten next year.

“Our experience from the pandemic has really frankly surprised to the upside,” he said in a live “Closing Bell” interview. “I’ve really adjusted my expectations moving forward.”

Bostic’s outlook comes as some recent economic data slows and the Atlanta Fed’s own GDP tracker estimates GDP growth of just 0.5% in the third quarter.

He said he thinks that some of the barriers in place due to the Covid-19 pandemic will fade and clear the way for stronger growth. One challenge he doesn’t see going away soon, though, is inflation.

Other Fed officials have called the current spate of inflation, which is running at a 30-year high, transitory. Bostic rejects that notion. He said price pressures are showing up across the economy and will influence growth and policy.

“The disruptions are going to last longer than we expected,” Bostic said. “The labor markets are not going to get to equilibrium as quick as we hoped, but demand was also going to stay high and that combination was going to mean we’re going to have inflationary pressures. The more I talk to folks, it’s becoming clearer and clearer this is going to last into 2022.”

The Fed has been keeping its benchmark short-term interest rate anchored near zero since the start of the pandemic. In recent weeks, officials have indicated they are ready to start tapering the monthly asset purchases, possibly starting in November. Bostic has favored that move.

He also said he will watch inflation developments closely. If the Fed needs to put on the brakes to control prices, Bostic said he “will really encourage my colleagues and I to take some definitive steps to try to prevent that damage from getting very deep.”

Bostic also addressed a major announcement the Fed made Thursday, in which it said it will bar top officials from buying and selling individual stocks and bonds and playing the derivatives market. The move follows disclosures of trading that led to the resignation of two Fed regional presidents.

Bostic said he welcomed the change.

“I think this is a step to reflect and acknowledge that conditions have changed our position. The market has changed and we need to change our approach to make sure the public trust is kept,” he said.