Economic Buzz: Atlanta Fed President Bostic says US economy is in transition period

Atlanta Fed president Raphael Bostic has noted that while the federal funds rate the Fed controls directly influences short-term rates, it is not a dominant force that dictates all interest rates across the US economy. Bostic stated that the economy is in a transition period. Unlike most of the past several years, when risks to the inflation mandate were clearly the greater risk, risks to the employment mandate have increased such that the relative risks are more balanced.

In formulating a monetary policy stance, Bostic explains that it is his duty to determine whether the risk of not reaching our inflation goal is greater than, smaller than, or the same as the risk of not hitting the maximum employment goal. He notes that the Fed has a dual mandate to pursue both price stability and maximum employment.

If the Fed was like most central banks and pursued only price stability, then the Federal Open Market Committee (FOMC) would be unconcerned with employment and lowering the federal funds rate in this environment would be out of the question. Bostic also says the FOMC's revised strategic framework emphasizes the Committee's commitment to "act forcefully to ensure that longer-term inflation expectations remain well anchored, to the benefit of both sides of our dual mandate.

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