Fed’s Bostic Says Softening U.S. Data May Call for More Action
Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta. (Photographer: Elijah Nouvelage/Bloomberg)

Fed’s Bostic Says Softening U.S. Data May Call for More Action

The U.S. economy seems to be leveling off amid a rising pace of virus infections, Federal Reserve Bank of Atlanta President Raphael Bostic said, potentially warranting more action by the central bank or fiscal authorities.

“The Fed definitely needs to think about whether more is necessary and really understand the nature and causes of the shortfalls,” Bostic told reporters Wednesday after a virtual speech to the Rotary Club of Columbus, Georgia. “Officials throughout the Federal Reserve system have been pretty clear that even if there is weakness, it is not always obvious that the Fed is the right body to be doing the response.”

Fed’s Bostic Says Softening U.S. Data May Call for More Action

Fed officials held interest rates near zero last month and signaled they would stay that way through 2022. Central bankers including Chair Jerome Powell have also said that fiscal policy may have a further role to play in helping workers and employers stay afloat during the pandemic.

Small Businesses

Bostic said he is particularly concerned that U.S. small businesses, especially “the smallest of the small” firms, are being left out of relief efforts because they lack banking relationships that sped up funding as part of past relief measures. The Trump administration and Congress are considering more aid, with a White House official saying this week the goal is to keep the cost at $1 trillion or less.

For the Fed, strengthening forward guidance on interest rates as well as targeting rates along the Treasury yield curve were options discussed last month, minutes of the June 9-10 Federal Open Market Committee meeting show.

“Right now, I think that forward guidance is going to be quite important,” Bostic said. As for yield curve control, “Before leaning in too much to that I want to have us all be clear on what we are trying to accomplish.” It would also be important that, if such a move were taken, the central bank could “facilitate an orderly and straightforward exit,” he told reporters.

Bostic, who doesn’t vote on monetary policy this year, said he was worried by recent slowing of data but hasn’t changed his forecasts. Real-time measures of business activity have stalled in recent weeks as the rate of infections has risen in states including Florida and Georgia -- in the Atlanta Fed district -- as well as Arizona, Texas and California.

Leveling Off

“The energy in terms of reopening for businesses and for just general activity is starting to level off,” he said. “This is something we are definitely going to watch extremely closely.”

Bostic said policy makers’ decisions on whether they can reopen schools safely will be critical for the economy.

“The schools are really important,” he said. “If parents can’t get child care and they are worried about those sorts of issues, they are not going to be as productive in the workplace. We are going to need to have some answers there if we want the recovery to happen in a smooth way.”

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