Federal Reserve must stay 'purposeful and resolute' in inflation fight, Bostic says (updated)

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It's important for monetary policymakers to "remain purposeful and resolute" in bringing inflation down to the Federal Reserve's 2% goal, said Atlanta Fed President Raphael Bostic said on Wednesday at the Northwestern University Institute for Policy Research.

"We are still in the inflationary woods, not out of them," he said.

"We must look to signals in addition to inflation readings to guide our policy. That's because inflation will be among the last economic indicators to materially shift," he said. "Simply waiting for inflation to decline all the way to 2% before backing off on tightening may not be the best approach."

That would likely lead to an overshoot and a deep recession, he said. Still, he's not advocating a quick return to accommodative policy, because easing policy too quickly in the past has led to entrenched inflation.

"We're seven months into the tightening cycle. We likely still have some ways to go," Bostic said. Ideally, he'd like the Fed's policy rate to reach "moderately restrictive", what he expects to be 4.0%-4.5% by the end of the year and then hold it at that level to see how the economy and prices respond.

There could be some short-term pain, he said, but Bostic expects that the U.S. economy is strong enough to allow the federal funds rate to reach 4.0%-4.5% "without causing undue dislocation in output and employment."

"We cannot waver because price stability is necessary for us to achieve sustained maximum employment and to pursue an economy that works for everyone," Bostic concluded.

Update at 4:45 PM ET: No businesses that he's spoken with have talked about laying people off, he said. That makes the situation "quite unusual" in that the labor market has stayed this strong during a period of high inflation.

On Tuesday, San Francisco Fed President Mary Daly described inflation as "corrosive" as it reduces labor market power