Raphael Bostic, President and Chief Executive Officer (2024)

Renewed Hope on Inflation but More Confidence Needed

June 27, 2024

Since my last essay in March, the economy and labor markets have continued to expand in healthy fashion. But the outlook concerning the most pressing issue of the day—inflation—has taken a subtle turn.

First, let me offer a quick recap.

During 2023, the inflation rate fell by more than half—from well above 5 percent to below 3 percent, per the personal consumption expenditures (PCE) price index, the Federal Open Market Committee's (FOMC) preferred gauge. That was a much steeper decline than my staff and I and most observers expected.

However, that progress slowed considerably early this year, with some suggesting that the decline may have stalled out entirely.

Well, the most recent inflation reports offer signals that push against the "stalling out" narrative. The April reports for the consumer and PCE price indexes presented a picture of inflation that was more consistent with the data received in the second half of 2023 than what we saw in the first months of 2024. In April, the headline year-over-year PCE reading of 2.7 percent was the same as the November 2023 reading.

Though the April PCE inflation reading was unchanged from five months earlier, mining the details of the inflation reports reveals a few promising signals. One I pay close attention to is the breadth of price changes—specifically, the percentage of individual goods and services prices in the consumer price index that rose more than 5 percent. That portion came in at 18 percent in May, and the three-month average has dipped to 35 percent, a level not seen since the summer of 2023, when overall inflation was steeply declining.

Still, that 35 percent figure is higher than a level that is consistent with price stability. But the salient point is that it's moving in the right direction. Consider that two years ago, in May 2022, 70 percent of prices rose by 5 percent or more. So, price pressures appear to be narrowing.

Progress will continue, but patience is in order

Despite those hopeful recent glimmers, the stubbornness of inflation early this year indicates that progress toward the FOMC's 2 percent objective will likely come more slowly than I and others had previously hoped. That said, I have long maintained that the path to 2 percent would take considerable time; it just might take a little longer than one might have expected given how fast inflation was falling as we exited 2023.

If conditions unfold as I expect—orderly slowing in the labor market and in economic activity—then inflation should fall all the way to 2 percent in 2025 or perhaps a bit later.

Even as 2 percent is the unquestioned target, it is important to note that inflation need not get all the way to target for me to favor reducing restrictiveness in monetary policy. If the Committee waits that long, it risks sapping too much momentum from the economy and labor market and creating unnecessary and harsh disruptions.

Rather than holding the federal funds rate steady until we are at the target, I would favor reducing the policy rate once I gain additional confidence that we are clearly on the path to the 2 percent objective.

What would provide that confidence? I am looking in particular for progress in shelter prices and services prices more broadly. Prices of services—air fares, restaurant meals, hotel rooms, haircuts, oil changes—tend to move far less quickly than goods prices because the largest cost input into services prices is usually labor, and wages do not tend to move as quickly as prices of raw materials do. But of late, contacts in service industries are telling my staff and me that their pricing power is eroding a bit, meaning they are finding it harder to raise prices without scaring off customers.

Housing prices and rents, meanwhile, have decreased more slowly than most anticipated in the midst of the Committee's moves to take the federal funds rate from effectively zero to above 5 percent over 16 months. My research team tells me declines in market rents will eventually show up in the official price data, but that development has been slow in coming.

Like many economic dynamics in the wake of the pandemic, shelter prices have behaved differently in this inflationary episode than history suggests they would. Economists at our Bank and elsewhere are working to untangle the reasons why.

I will also be looking beyond the headline numbers. On inflation, I'd like to see a narrowing of the breadth of price changes that I mentioned above. To use a labor market example, we will be tracking the extent to which strong top-line employment growth numbers continue to be a function of strength in a small number of sectors—healthcare and government, in particular—or represent strength across a broader set of sectors that suggests a slowdown might not be forthcoming. Overall, as a general matter, I want to make sure we achieve a price stability that will persist beyond an initial attainment of a 2-percent numerical headline.

Pandemic still a major economic influence

One reason I will be looking beyond the headlines is that it is clear to me that, despite a return to normalcy in many areas of our lives, today's economy is still heavily influenced by the global pandemic. I think the effects of policy responses to the pandemic bolstered the labor market and broader economy even in the face of aggressive monetary policy tightening.

Monetary policy affects economic sectors most sensitive to interest rates first, as one would expect. Prominent among those sectors is housing. And mortgage banking executives tell me they have essentially been in recession for a year because prevailing mortgage rates quickly doubled or tripled to levels above 7 percent.

Yet across the economy, activity has soldiered on despite higher interest rates. For many months during lockdowns, most of us were limited in what we could spend money on. Financial supports also left many households in a stronger financial position than they had been in entering the pandemic.

All the while, in the years immediately before the pandemic, interest rates had been low by historical standards. As a result, many consumers and firms locked in low rates on longer-term credit, and then more did so when the Fed slashed rates early in the pandemic lockdowns to support economic activity. Those dynamics, in my view, have softened the impact of higher interest rates.

Other changes could also be shifting how restrictive policy affects the economy. Looking ahead, business contacts tell my staff and me that a major emerging category of capital spending is software as a service. Essentially, instead of buying software packages, firms pay an ongoing monthly or annual fee to use apps housed in the cloud. This kind of transaction typically does not entail borrowing, and so is likely to be undeterred by higher interest rates.

The upshot of these and other factors is that it might well be taking longer for tighter policy to drive business decisions in a material way.

But we see signs of it starting to happen. Gross domestic product (GDP) growth in the first quarter slowed to just above 1 percent after topping 3 percent in the third and fourth quarters of 2023. And, though the 272,000 new jobs in May was an upside surprise, reports I'm hearing from Sixth District business contacts give me confidence that slowing is occurring in labor markets as well. Hiring is easier, turnover is down, and broader measures of the labor market, such as the Kansas City Fed's Labor Market Conditions Indicators, report that market activity has fallen significantly since the beginning of the year. One might think of labor markets today as "loosening but not loose."

On balance, I believe the most recent GDP and employment numbers describe an orderly deceleration in activity that will restore balance between demand and supply in the economy. That realignment should, in turn, put downward pressure on prices. After all, excess demand above supply sparked the inflation surge starting in 2021.

It's really Econ 101: the meshing of the demand for a good or service and its supply determines the price. That holds not only for cars or carpenters but also for the economy writ large.

Taking all the circ*mstances into account, I continue to believe conditions will likely call for a cut in the federal funds rate in the fourth quarter of this year. Still, the pandemic years have brought many surprises, and so I'm not locked in to any particular policy path. There are plausible scenarios in which more cuts, no cuts, or even a raise could be appropriate. I will let the data and conditions on the ground be my guide.

Be assured, we will bring inflation to 2 percent. That is the Committee's definition of price stability, a condition necessary for broad prosperity, sound decision-making for families and firms, and an economy that works for everyone.

When we get inflation to 2 percent, that does not mean prices across the board will be lower than they were before 2021. What it does mean is that we should have an economy in which inflation no longer dominates the psychology of consumers and producers, and that is the state the Committee and I aim to achieve.

Dr. Raphael W. Bostic took office June 5, 2017, as the 15th president and chief executive officer of the Federal Reserve Bank of Atlanta. He is responsible for all the Bank's activities, including monetary policy, bank supervision and regulation, and payment services. He serves on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.

From 2012 to 2017, Bostic was the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the Sol Price School of Public Policy at the University of Southern California (USC).

He arrived at USC in 2001 and served as a professor in the School of Policy, Planning, and Development. His research has spanned many fields, including home ownership, housing finance, neighborhood change, and the role of institutions in shaping policy effectiveness. He was director of USC's master of real estate development degree program and was the founding director of the Casden Real Estate Economics Forecast.

Bostic also served USC's Lusk Center for Real Estate as the interim associate director from 2007 to 2009 and as the interim director from 2015 to 2016. From 2016 to 2017, he was the chair of the center's Governance, Management, and Policy Process Department.

From 2009 to 2012, Bostic was the assistant secretary for policy development and research at the U.S. Department of Housing and Urban Development (HUD). In that role, he was a principal adviser to the secretary on policy and research, helping the secretary and other principal staff make informed decisions on HUD policies and programs, as well as on budget and legislative proposals.

Bostic worked at the Federal Reserve Board of Governors from 1995 to 2001, first as an economist and then as a senior economist in the monetary and financial studies section, where his work on the Community Reinvestment Act earned him a special achievement award.

He serves on many boards and advisory committees, including Georgia's Partnership for Inclusive Innovation. He is also a member of Harvard University's Board of Overseers. He previously served as the chair of the board of directors of the United Way of Greater Atlanta and chair for the Metro Atlanta Chamber of Commerce, and a member of the Advisory Committee on Economic Inclusion at the Federal Deposit Insurance Corporation.

Bostic graduated from Harvard University in 1987 with a combined major in economics and psychology. He earned his doctorate in economics from Stanford University in 1995.

The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which covers Alabama, Florida, and Georgia, and parts of Louisiana, Mississippi, and Tennessee. The Bank has branches in Birmingham, Jacksonville, Miami, Nashville, and New Orleans.

Updated February 2024

Bostic, Raphael W. April 18, 2020. "Opinion: Fed's Working to Aid Economy, Post-Pandemic Recovery." Atlanta Journal-Constitution.

Bostic, R. and Johnson, M. January 15, 2020. "BankThink: How to keep community banks thriving." American Banker.

Boarnet, M. G.; Bostic, R. W.; Rodnyansky, S.; Burinskiy, E.; Eisenlohr, A.; Jamme, H.; and Santiago-Bartolomei, R. 2020. "Do High Income Households Reduce Driving More When Living near Rail Transit?" Transportation Research Part D: Transport and Environment 80.

Bostic, R. W.; Jakabovics, A.; Voith, R.; and Zielenbach, S. 2019. "Mixed-Income LIHTC Developments in Chicago: A First Look at Their Income Characteristics and Spillover Impacts." In What Works to Promote Inclusive, Equitable Mixed-Income Communities, edited by Mark L. Joseph and Amy T. Khare, cluster #1, section A, no. 6.

Boarnet, M. G.; Bostic, R. W.; Burinskiy, E.; Rodnyansky, S.; and Prohofsky, A. 2018. "Gentrification near Rail Transit Areas: A Micro-Data Analysis of Moves into Los Angeles Metro Rail Station Areas." Research Reports, University of California National Center for Sustainable Transportation.

Bostic, R. W. and Molaison, D. Forthcoming. "Hurricane Katrina: Devastation, Possibilities and Prospects." In Economic and Risk Assessment of Hurricane Katrina, University of Southern California Center for Risk and Economic Analysis of Terrorism Events.

Bostic, R.; Kim, A.; and Valenzuela, A. 2016. "An Introduction to the Special Issue: Contesting the Streets 2: Vending and Public Space in Global Cities." Cityscape 18(1): 3–10.

Bostic, R. W. and Ellen, I. G. 2014. "Introduction: Special Issue on Housing Policy in the United States." Journal of Housing Economics 24: 1–3.

Bostic, R. 2014. "CDBG at 40: Opportunities and Obstacles." Housing Policy Debate 24(1): 297–302. doi:10.1080/10511482.2013.866973.

Bostic, R. W. 2014. "Resilient Economic Development: Challenges and Opportunities." In University of Illinois Chicago Urban Forum, edited by M. Pagano. University of Illinois Press.

Bostic, R. W. and McFarlane, A. 2013. "The Proposed Affirmatively Furthering Fair Housing Regulatory Impact Analysis." Cityscape: A Journal of Policy Development and Research 15(3): 257.

Bostic, R. W.; Thornton, R. L.; Rudd, E. C.; and Sternthal, M. J. 2012. "Health in All Policies: The Role of the U.S. Department of Housing and Urban Development and Present and Future Challenges." Health Affairs 31(9): online.

Graddy, E., with Bostic, R. W. 2010. "The Role of Private Agents in Affordable Housing Policy." Journal of Public Administration Research and Theory 20, special issue: 81–99.

Bostic, R.; Gabriel, S.; and Painter, G. 2009. "Housing Wealth, Financial Wealth, and Consumption: New Evidence from Micro Data." Regional Science and Urban Economics 39(1): 79–89.

Bostic, R. W., with Engel, K.; McCoy, P.; A. Pennington-Cross; and Wachter, S. 2008. "State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms." Journal of Economics and Business 60(1–2): 47–66.

An, X. and Bostic, R. W. 2008. "GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals." Journal of Real Estate Finance and Economics 36(2): 207–31.

An, X.; Bostic, R. W.; Deng, Y.; and Gabriel, S. 2007. "GSE Loan Purchases, the FHA, and Housing Outcomes in Targeted, Low-Income Neighborhoods." In Brookings-Wharton Papers on Urban Affairs, edited by G. Burtless and J.R. Pack. Brookings Institute Press.

Sloane, D. C., with Bostic, R. W. and Lewis, L. B. 2007. "The Neighborhood Dynamics of Hospitals as Land Owners." Lincoln Land Institute publication.

Bostic, R. W., with Longhofer, S. D. and Redfearn, C. 2007. "Land Leverage: Decomposing Home Price Dynamics." Real Estate Economics 35 (2): 183–208.

Bostic, R. W. and Prohofsky, A. 2006. "Enterprise Zones and Individual Welfare: A Case Study of California." Journal of Regional Science 46 (2): 175–203.

Bostic, R. W. and Gabriel, S. A. 2006. "Do the GSEs Matter to Low-Income Housing Markets? An Assessment of the Effects of GSE Loan Purchase Activity on California Housing Outcomes." Journal of Urban Economics 59: 458–75.

Black, H.; Bostic, R. W.; Robinson, B.; and Schweitzer, R. 2005. "Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers." The Financial Review 40(4): 575–86.

Bostic, R. W. with Robinson, B. 2004. "Community Banking and Mortgage Credit Availability: The Impact of CRA Agreements." Journal of Banking and Finance 28: 3069–95.

Bostic, R. W., with Calem. P. S. and Wachter, S. M. 2004. "Hitting the Wall: Credit as an Impediment to Homeownership." In Building Assets, Building Credit: Creating Wealth in Low-Income Communities, edited by N. Retsinas and E. Belsky. Joint Center for Housing Studies and Brookings Institution Press.

Bostic, R. W., with Redfearn, C. 2004. "Book Review [The Color of Credit: Mortgage Discrimination, Research Methodology and Fair Lending Enforcement, by Stephen L. Ross and John Yinger]." Journal of Regional Science 44(1):162–65.

Bostic, R. W., with Aaronson, D.; Huck, P.; and Townsend, R. 2004. "Supplier Relationships and Small Business Use of Trade Credit." Journal of Urban Economics 55(1): 46–67.

Bostic, R. W., with Barakova, I.; Calem, P.; and Wachter, S. 2003. "Does Credit Quality Matter for Homeownership?" Journal of Housing Economics 12(4): 318–36.

Bostic, R. W. 2003. "A Test of Cultural Affinity in Home Mortgage Lending." Journal of Financial Services Research 23(2): 89–112.

Bostic, R., with Robinson, B. 2003. "Do CRA Agreements Increase Lending?" Real Estate Economics 31(1): 23–51.

Bostic, R. W., with Calem, P. S. 2003. "Privacy Restrictions and the Use of Data at Credit Repositories." In Credit Reporting Systems and the International Economy, edited by Margaret J. Miller. Boston: MIT Press.

Bostic, R. W., with Martin, R. 2003. "Black Homeowners as Gentrifying Force? Neighborhood Dynamics in the Context of Minority Homeownership." Urban Studies 40(12).

Bostic, R. W. 2002. "Equal Access to Credit." In 25 Years of Credit Research, edited by Mike Staten. Washington, DC: Georgetown University Press.

Bostic, R., with Canner, G. B. 2000. "Consolidation in Banking: How Recent Changes Have Affected the Provision of Banking Services." The Neighborworks Journal.

Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "Highlights of a Survey of the Performance and Profitability of CRA-Related Lending." Housing America Update.

Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "CRA Special Lending Programs." Federal Reserve Bulletin 86: 711–31.

Bostic, R., with Avery, R. B.; Calem, P. S.; and Canner, G. B. 2000. "Credit Scoring: Statistical Issues and Evidence from Credit Bureau Files." Real Estate Economics 28: 523–47.

Bostic, R., with Canner, G. B. 1998. "New Information on Small Business and Small Farm Lending: The 1996 CRA Data." Federal Reserve Bulletin 84(1): 1–21.

Bostic, R., with Avery, R. B. and Samolyk, K. A. 1998. "The Role of Personal Wealth in Small Business Finance." Journal of Banking and Finance 22: 1019–61

Articles

2024

Bostic, Raphael W. May 6, 2024. "How the Fed Goes Beyond the Data to Try to Make the Economy Work for Everyone." FedCommunities.

2020

Bostic, R.; Bower, S.; Shy, O.; Wall, L.; and Washington, J. September 2020. "Digital Payments and the Path to Financial Inclusion." Promoting Safer Payments Innovation Series no. 20-1.

Blog Posts

2019

Raphael Bostic. "Quantitative Frightening?" macroblog. January 16, 2019.

2018

Raphael Bostic. "What Does the Current Slope of the Yield Curve Tell Us?," macroblog. August 23, 2018.

Raphael Bostic. "Thoughts on a Long-Run Monetary Policy Framework" macroblog series:
"Framing the Question." March 26, 2018.
"Part 2: The Principle of Bounded Nominal Uncertainty." March 27, 2018.
"Part 3: An Example of Flexible Price-Level Targeting." March 28, 2018.
"Part 4: Flexible Price-Level Targeting in the Big Picture." April 2, 2018.

Interviews

2018

Raphael Bostic. "A Big-Picture Look at the Economy. " ECONversations. February 21, 2018.

Economy Matters Podcast Episodes

2020

Raphael Bostic (interviewer) and Anthony Orlando. "'These Local Problems Do Have Some National Solutions': A Conversation about Inequality." February 27, 2020.

Raphael Bostic (interviewer) and James Fallows. "Wings over America: A Conversation with Author James Fallows." . January 2, 2020.

2019

Raphael Bostic (interviewer) and Alessandro Acquisti. "Speaking Publicly on Privacy: A Conversation about Digital Privacy." April 2, 2019.

Raphael Bostic (interviewer) and Jerome Adams. "Health Is Wealth": A Conversation with the U.S. Surgeon General." January 3, 2019.

Raphael Bostic (interviewer) and Raj Chetty. "'A Kid Should Have a Fair Shot': A Discussion of Economic Mobility." October 22, 2018.

Raphael Bostic (interviewer) and David Lusk. "'It's a Really Dramatic Change': A Discussion of the Economics of Food." October 12, 2018.

Raphael Bostic. "'It's a Special Job': A Conversation with Atlanta Fed President Raphael Bostic." April 27, 2018.

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