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Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta.
The Fed raised interest rates earlier this week and forecast two more rate hikes for 2018 and three each year after that, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation.
Bostic voted for the rate increase and on Friday said it made sense, given the outlook. He added, however, that though labor markets are “not yet overheated,” there are risks to the upside on labor costs. There are also upside risks on inflation, he said, and while it is likely to remain calm, for the first time in many years runs a risk of rising “somewhat above” the Fed’s 2-percent goal.
Not all in Bostic’s forecast was rosy. The threat of tariffs, and potential retaliation by trading partners, poses as much of an upside risk to the economy as fiscal stimulus does to the upside, he said Friday.
And he said it is important to raise rates only gradually towards a neutral level of perhaps 2.25 percent to 2.75 percent, particularly as the outlook for inflation is uncertain and the effects of reducing the Fed’s massive balance sheet are still being calibrated.
“With the economy operating near its potential and inflation finally approaching the long-run target, it is appropriate, in my opinion, for monetary policy to be moving toward a more neutral stance,” he said.