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The chief of the Atlanta Federal Reserve said the U.S. economy has strengthened enough to to allow the central back to phase out emergency measures that helped avoid a collapse during the pandemic.
Raphael Bostic on Thursday said the economy has recovered even faster than he expected and achieved the Fed’s goal of “substantial further progress.”
“I am trying to incorporate a bit more of that into my forecasting,” he told reporters in a phone call ahead of an event at Georgia Tech university.
As a result, Bostic said the Fed should begin to taper, or scale back, its monthly purchases of $120 billion in bonds. The central bank signaled last week that an announcement is likely in November.
The record amount of bond-buying helped drive U.S. interest rates to record lows during the pandemic and keep the economy from suffering even worse damage.
A member of the Fed’s policy-setting board this year, Bostic’s own forecast calls for an increase in U.S. interest rates toward the end of 2022. He also forecasts three rate hikes in 2023, putting him somewhat more on the “hawkish” side of senior Fed officials.
Bostic also expressed worries that a bout of high inflation the U.S. is experiencing right now could be prolonged by worsening shortages of parts and supplies. Businesses have increased prices because their own costs have risen.
Read: Powell says high inflation could last into early next year due to shortages
The yearly rate of inflation rose to a 30-year high of 4.2% in July using the Fed’s preferred PCE price barometer. That’s more than double the central bank’s 2% target and well above the Fed’s 1.8% forecast at the start of the year.
Bostic still expects inflation to subside once the shortages fade, but he said he’s watching closely to make sure inflation doesn’t start to get embedded into the broader economy. He pointed out that both short-term and long-term measures of inflation expectation remain on the low side.
Read: The Fed has bet on a future of low inflation. Here’s what could go wrong
Another potential worry is a shortage of workers that’s also putting upward pressure on inflation.
Read: U.S. jobless claims jump to two-month high amid surge in California
Millions of Americans who had jobs before the pandemic still haven’t returned to work. Several million appear to have retired early and others have enough income to get by. Legal immigration is also at relatively low levels.
Bostic expects most of these people to reenter the labor force in the near future, but he said it will take time to determine if the pandemic induced a semi-permanent or permanent shift in the size of the labor force.
“We’re looking at this now,” he said.
