BATON ROUGE, La. (Reuters) - Falling stock prices, uncertainty around global trade and other possible “headwinds” are not enough yet to throw the U.S. economy off course or force the Fed to alter its intent for continued gradual rate increases, Atlanta Federal Reserve President Raphael Bostic said on Tuesday.
Speaking as equity markets dropped sharply over global concerns and weak corporate earnings, Bostic said he was now “more comfortable” with raising rates a fourth time this year, a prospect he had remained noncommittal about until now.
Bostic, a voting member of the Fed’s policy committee this year, said recent strong economic growth had convinced another increase is appropriate this year.
“The numbers for the second and third quarter came in much stronger,” Bostic told reporters here. “That got me to be much more comfortable” with a fourth 2018 rate increase, expected at the Fed’s December meeting.
Bostic said the central bank can still raise rates “a few” more times until it reaches a level that is neither encouraging nor discouraging investment and spending.
“Unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate,” said Bostic, who had remained non-committal about a possible December rate increase. “There is little reason to keep our foot on the gas pedal.”
Bostic said he estimated neutral to be between 2.75 percent to 3 percent, allowing two or three more rate increases from the current federal funds rate range of between 2 and 2.25 percent.
Gross domestic product grew at a 4.2 percent pace in the second quarter. Combined with third-quarter growth of around 3.5 percent, Bostic said it “may suggest that the economy is shifting into a higher gear.”
Throughout the current near decade-long expansion, growth has averaged 2.3 percent.
Recent selloffs in the stock market have caused investors to trim their expectations of a December rate increase. Data from the CME Group show traders shaved the probability around a December hike by a full 10 percentage points after equity markets fell another full percentage point on Tuesday.
“At the moment, there are headwinds in the form of tariffs, trade restrictions, and market volatility,” Bostic said in remarks at Louisiana State University. “After digging through the data...I come away with the sense that economic growth is on a strong trajectory.”
Reporting by Howard Schneider; Editing by Chizu Nomiyama