January’s robust jobs report could lead to the Federal Open Market Committee raising its key interest rate higher than the policymakers had previously expected, Atlanta Fed President Raphael Bostic said Monday.
On Friday, the January nonfarm payrolls showed 517K jobs were added to the U.S. economy, more than double the 185K expected, and the unemployment rate fell to 3.4%, its lowest level since 1969.
If that kind of strength persists, “I’ll probably mean we have to do a little more work,” Bostic told Bloomberg News in a phone interview. “And I would expect that would translate into us raising interest rates more than I have projected right now.”
He maintains that his base case would bring the federal funds rate to 5.1%, matching the median FOMC members’ projection, and keep it there through 2024. A higher terminal rate could come through an additional 25-basis-point increase to the two he has already penciled in, he said.
Last week, the FOMC raised the federal funds rate target range by 25 bps to 4.5%-4.75%.
Bostic, who isn’t a voting member of the FOMC this year, also said that the committee could consider moving back to a 50-bp hike if necessary. He did back last week’s decision to step down to a 25-bp increase.
Traders have turned more hawkish in their rate expectations. The probability of the Fed raising its rate range to 5.0%-5.25% at the May meeting increased to 74.0% from 40.5% a week earlier, according to the CME FedWatch tool.
Earlier Monday, SA contributor Mott Capital Management pointed out that the market is now pricing in even more rate hikes.