Fed’s Bostic Says ‘Hard Part’ Still Ahead If Inflation Stubborn

(Bloomberg) — Federal Reserve Bank of Atlanta President Raphael Bostic and his Chicago counterpart Austan Goolsbee voiced optimism they could achieve a soft landing for the US economy, but Bostic warned officials will face a stern test if it turns out they are wrong.

“We haven’t gotten to the hard part yet,” he said Tuesday, describing the enormous pressure central bankers would face if they were unable to bring down inflation without causing significant harm to employment. “We are going to have to be super strong and detached.” he said.

The two policymakers were taking part in a moderated discussion Tuesday at the Atlanta Fed’s annual financial markets conference on Amelia Island, Florida.

Goolsbee said the role in causing inflation played by pandemic-induced supply shocks suggests the potential for managing a “soft landing of a form that would definitely be unusual. But I think mocking the immaculate disinflation is a mistake because there was a large component that was immaculate inflation.”

US central bankers raised interest rates by a quarter percentage point earlier this month to a target range of 5% to 5.25% and signaled they could pause their tightening campaign in June.

Having lifted their benchmark rate five percentage points in little more than a year, officials are assessing if they’ve done enough to quell inflation that remains well above their 2% target.

They must also weigh headwinds from tighter credit conditions following the recent failure of four US regional banks, and potential fallout if Washington fails to lift the debt ceiling.

Bostic said one of the reasons he was confident that inflation could be cooled without a sharp rise in unemployment was because “we have strength in parts of the economy that you don’t usually have when you’re at this part of a policy cycle.”

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