On Wednesday, local time, 2021 FOMC voting member and Atlanta Fed President Bostic said he expects the Fed to start raising interest rates in 2022 and twice in 2023, and that the FOMC will make a decision on tapering QE in the next three to four months.
After Bostick’s statement, the three major U.S. stock indexes dived, the Nasdaq turned lower, the dollar index was higher in the short term, the U.S. 5-year Treasury yields climbed to intra-day highs, and gold was lower in the short term. the COMEX most active gold futures contract June 24, Beijing time 02:33 a minute trading plate instantly traded 3,336 lots, the total value of trading contracts 594 million U.S. dollars. Spot gold fell below $1780/oz again during the day.
At last week’s Fed rate meeting, Bostic was one of seven Fed officials who predicted the central bank would raise interest rates in 2022. Bostic said the U.S. economy is recovering quickly from the new crown epidemic, with much of the recent data coming in higher than expected, GDP on a higher trajectory while inflation is soaring, all of which exceeded the Fed’s expectations. He expects the U.S. economy to grow 7% this year and inflation to reach 3.4%, higher than the Fed’s 2% target, so interest rates will need to be raised by the end of 2022.
More and more Fed officials are loosening their grip on QE tapering, and Bostic believes that the economy is moving toward the “substantial further progress” standard set by the Fed for QE tapering. Bostic said, in his view, the U.S. economy is close to this goal, if the economic data in the coming months with the recent equivalent, then this goal will be achieved. Given the high probability of this, it is appropriate to start planning QE tapering now.
He does not have a strong view on whether to scale back mortgage bonds before scaling back purchases of U.S. Treasuries.
Despite the hawkish stance on rate hikes and QE tapering, Bostic’s views on inflation are consistent with most Fed officials, who believe that the duration of rising inflation is higher than expected, but will ease significantly after this year because many of the factors affecting price pressures are temporary. However, Bostic also admitted that the Fed initially expected these factors to last only 2 to 3 months, and now they expect that it may last 6 to 9 months time. Bostic stated.
“The economy is rebounding strongly and we are well positioned to keep inflation slightly above the target level.”
On the job market, Bostic said current job market performance is the biggest driver of the tapering strategy, and strong employment data in the coming months will open the door to tapering bond purchases. He said the Fed will get a clear message from the labor market in the fall and needs to remain flexible and ready to act.
He believes that perhaps three or four more months of steady job growth will put the labor market in a “very stable state. Bostic expects the unemployment rate to fall to 4.5% this year.
By the end of the U.S. stock market, Dallas Fed President Kaplan also made a public speech, he also expects the Fed will raise interest rates for the first time in 2022, inflation will moderate in 2022, but the range will expand. He also added that the U.S. economy will reach the threshold of QE tapering set by the Fed sooner than expected. Since then U.S. stock indexes have retreated collectively, with the S&P turning lower again, and the Dow both closing lower.
Kaplan expects PCE inflation to be 3.4% in 2021, slowing to 2.4% in 2022. He said that while some price pressures will ease over the next six months, others may represent a longer-term trend.
Kaplan is an alternate member of the FOMC in 2022 and will become a full member in 2023.
As of now, the Fed officials who have indicated the need to raise rates in 2022 after the June Fed FOMC meeting are Kaplan, Bullard and Bostic.