Bostic Says Fed Could Hike a Half-Point in March If Inflation Strengthens

Atlanta Fed President Raphel Bostic said that the central bank could hike its benchmark overnight rate target by half a percentage point, twice what markets have been pricing in.

“Every option is on the table for every meeting,” Bostic said in an interview with the Financial Times. “If the data say that things have evolved in a way that a 50-basis-point move is required or be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” he told the newspaper.

The Fed is all-but-certain to raise rates when at the March meeting of Federal Open Market Committee. Swaps prices currently imply around an 85 percent chance that the target will be raised to between 50 and 75 basis points (a basis point is one0-hundreds of a percentage point) from the current target of zero to 25 basis points.

Prices imply around a 15 percent chance of the larger hike Bostic mentioned.

Bostic, who made waves last year when he said that the Atlanta Fed had banned the use of the word “transitory” to describe inflation, said he thought the most likely outcome is for three quarter-point increases starting in March. The last time the Fed hike was on a hiking cycle, between 2015 and 2019, it hiked by 0.25 percent each time it raised rates.

Swaps prices for a second hike at the May meeting moved up significantly last week. At the start of the week, derivatives traders had priced in around a 41 percent chance of the Fed hiking to a range of 0.5 percent to 0.75 percent. A month ago, this had just a 20 percent chance. As of Friday, the odds had jumped to 71 percent..

Bostic also mentioned that the Fed could raise rates at each of its seven remaining scheduled meetings this year. He said he would be watching consumer prices closely and monitoring wage gains to see if they are feeding inflationary pressure.
The FOMC consists of 12 voting members–the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. Bostic is not a voting member this year.