Fed's Bostic: 75 bps rate hike is low probability

Federal Reserve Raphael Bostic has crossed the wires with some important insight for monetary policy in the US and has stated that a 75 bp rate hike is not his baseline although he is not taking anything off the table.

He stated that a 75 bp rate hike is a low probability but if things turn that may be needed. Currently he is looking month to monthly moves on inflation and argues that there are some recent signs that inflation is not accelerating, ''that's a good thing.''

Key quotes

• Business leaders are grappling with uncertainty.
• Business leaders see strong demand.
• Business leaders are worried that prices will get so high people will stop buying.
• So far they have been able to pass through prices.
• Businesses are having a hard time finding workers.
• We will be watching what fraction of businesses go to plan b to transition to a new approach.
• See 2 -3 50 bps rate hikes as baseline.
• While that's what i expect, will be open to adjusting.
• Supply chain challenges are starting to show signs of easing.
• Trucking companies no longer turning down requests because of capacity issues.
• See hope that supply chain problems may be unwinding.
• If easing in supply chain continue, that should reduce upward pressure on prices.
• The pandemic has triggered some significant structural changes in economy.
• There is still a lot of uncertainty to the downside as far as demand.
• We don't know how people will respond to high inflation envt; they could retrench.
• I am going to stay open to possibility that inflation will be approaching policy target at a faster pace than other colleagues project.
• If so we would not need to do as much.
• I think Fed chair was trying to say that inflation is too high, need to remove accommodation in purposeful, intentional way.
• Our policy rate has to respond more aggressively than historically.
• 50 bps rate hikes in successive meetings is aggressive by historical standards.
• Hopeful that will do the job in getting inflation closer to target.
• The goal is to get on steady course back to 2% inflation.
•  Businesses feel pressures are not getting worse, and possibly better, on inflation.
• It's not necessary for wages to stop growing.
• Wage growth is in part a reset to catch up to past inflation.
• If inflation slows, wage growth should slow.
• There's a lot of momentum in labor market; I am not hearing contacts are even close to laying people off.
•  If we start to see signs that businesses are thinking about reducing forces, that would be quite meaningful.

Market implications

Meanwhile, the US dollar was higher on Monday and was reaching a twenty-year high as US Treasury yields have climbed on expectations the Fed will be aggressive in attempting to tamp down inflation.