March 28, 2018 / 5:12 PM / 6 months ago

Fed's Bostic: time for interest rates to rise to neutral rate

WASHINGTON (Reuters) - The U.S. Federal Reserve should continue to raise interest rates back to the long-term neutral rate given how close the central bank is to its goals, Atlanta Fed President Raphael Bostic said on Wednesday.

FILE PHOTO: Raphael Bostic, President of the Federal Reserve Bank of Atlanta, poses for a photo in Knoxville, Tennessee, U.S., March 23, 2018. REUTERS/Ann Saphir/File Photo

“For me personally, I think we need to get back to neutral,” Bostic, who is a voting member of the Fed’s policy-setting committee this year, told an audience of finance and investment professionals in Atlanta.

The longer-run neutral rate of interest is a level that is neither expansionary nor contractionary for the economy. The Fed currently forecasts it at 2.9 percent.

“Unemployment is very close to something that is equivalent to a full employment position and inflation is approaching back to our 2 percent target. If things are running at close to where we...hope that they’ll be, then our policy doesn’t need to be super accommodative,” he said.

Bostic added that staying on a gradual path of rate rises would be more appropriate rather than bigger jumps in interest rates that could trigger volatility.

Last week Bostic said he voted for the Fed’s decision to raise interest rates to a target range of between 1.50 and 1.75 percent at its latest policy meeting and forecast another two rate rises in 2018, although he added it could be one more or less depending on the economy’s health.

The central bank raised its benchmark lending rate three times in 2017 and the median forecast of policymakers on the rate-setting committee is for another three this year.

Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama

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