Atlanta Fed’s Bostic leans toward half-point hike after softer PCE reading

Douglas Rissing

Atlanta Fed President Raphael Bostic said Friday that he is leaning towards a 50-basis-point interest-rate increase at the central bank’s September 21 meeting as inflationary pressures continue easing.

While markets have been increasingly hedging for a more aggressive 75-bp move (up until the day of Fed chief Powell’s keynote at Jackson Hole), Bostic’s remarks come in response to the PCE price index, the Fed’s preferred gauge for inflation, matching expectations at +6.3% Y/Y in July, and slowing from +6.8% in the prior month.

Speaking to CNBC, Bostic still argued that it’s “premature to think about cutting” the policy rate as headline inflation still hovers around a four-decade high, albeit showing signs of cooling in recent weeks.

Bear in mind that there’s plenty of economic data to watch before the September meeting, Bostic added, noting that he doesn’t currently have a recession built into his forecast. In a separate discussion with Bloomberg, Bostic said he will support a 75bp move if data comes in strong.

With all eyes on Fed chief Jerome Powell’s keynote at the Jackson Hole Economic Symposium at 10:00 a.m. ET, traders now price in a 63.5% probability of a 50-bp rate increase vs. a 36.5% chance of a 75-bp hike, according to the CME”s FedWatch tool. That a complete reversal from the prior day, when traders hedged for a 64.0% chance of a 75bp move vs. a 36.0% chance of a 50bp increase.

On Thursday, Bostic said he’s on the fence between supporting a 50bp and 75bp rate hike.

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