The Fed’s Bostic sees a possible rise in interest rates as early as the second half of next year

Interest rates could rise sooner than expected as the economy recovers faster than expected due to damage caused by Covid-19, Atlanta Federal Reserve Chairman Raphael said Monday Bostic.

While most of his colleagues do not see a rate hike until at least 2023, Bostic said he believes emergency measures the Fed has taken to combat the pandemic could begin to recede in the next two years, if not before.

“I think there’s some chance the economy may come back a little stronger than some expect,” he said during a virtual question and answer session in front of the Atlanta Rotary Club. “If that happens, I’m willing to support withdrawing and recalibrating our accommodation a bit and then consider changing the policy rate.”

“But I don’t see that happening in 2021. It would take a long time to get there,” he added. “Then we’ll see in 2022. Maybe the second half of 2022 or even 2023, where that could be more at stake.”

At the December meeting, members of the Federal Open Market Committee presented their individual expectations for the coming years. The average expectation of the Fed’s benchmark loan rate was to remain in its current target range of 0% to 0.25% until 2023, with a long-term estimate of 2.5%.

Of the 17 FOMC members who presented policy “points” that represent their forecast, none experienced a likely rate hike in 2021 and only one indicated an increase in 2022. For the following year, three recorded a single increase of 25 basis points while one indicated 50 basis points higher and another saw a move of 100 basis points, which translates into a full percentage point or the equivalent of four increases.

Fed officials have been largely cautious about the variety of risks to the forecasts, and Bostic also noted that growth is almost entirely at the mercy of how quickly Americans are vaccinated and coronavirus content .

“All the economic consequences have been a function of how we have responded to the public health crisis,” he said. “Making a forecast about this year is really at its heart a forecast of vaccine penetration into the population, so we’re in a place where we don’t have to be so cautious about how we do our economic activity.”

Bostic said he will study three data points to guide his judgment on when the Fed can begin delaying its crisis-era measures. In addition to near-zero rates, the Fed expanded its balance sheet by more than $ 3 trillion and implemented a number of lending and liquidity programs, several of which ended in late 2020.

These indicators include temporary versus permanent job losses, the health of small businesses, and consumer confidence. Replacing all three, however, will be the path of the virus and the success of efforts to control it, he said.