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.
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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.