President and Chief Executive OfficerDr. Raphael W. Bostic is president and chief executive officer of the Federal Reserve Bank of Atlanta. He is a participant on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
Message from the President
Risk Management Is Key to Monetary Policy in Uncertain Times
By Raphael Bostic, President and Chief Executive Officer
August 30, 2022
You may have noted that this summer's data showed glimmers of good news on the fight against inflation. The key word here is "glimmers." It is clearly much too early to claim victory. Inflation remains much too high, and month-to-month swings in any economic statistic can be unpredictable.
We understand inflation is causing pain for many Americans. Regaining price stability remains the Federal Reserve's top monetary policy priority. That commitment is unshakable.
The Federal Open Market Committee (FOMC) has moved, and will continue to move, expeditiously but carefully to bring inflation back toward our objective of 2 percent as measured by the personal consumption expenditures price index.
Yet getting a handle on today's economy is extremely challenging. The profound effects of the pandemic and attendant policy responses continue to shape macroeconomic conditions. Consider that in just two-and-a-half years, the US economy suffered its sharpest drop in overall output since World War II, followed by a rapid resurgence in demand, a dramatic imbalance between labor supply and demand, widespread supply and shipping constraints, and an inflation rate that surged from about 1.5 percent to 9 percent over the past 17 months.
The big picture is fuzzy
We've been through a lot. And economic signals are still scrambled.
To start, the broadest measure of activity, gross domestic product (GDP), showed that the economy contracted in the first two quarters of 2022. There were unusual circumstances that explain some of these data, but it seems apparent that activity slowed. Anecdotally, our contacts in retailing tell us higher prices are forcing low- and moderate-income consumers in particular to buy less-expensive products and forgo discretionary purchases. Meanwhile, trucking firms are reporting slackening demand.
On the flip side, other data describe an economy that is fundamentally stable. Employment growth this year continues strong, averaging 471,000 new jobs a month through July. As of July, total nonfarm employment returned to its prepandemic peak. Even our business contacts who voice concern about the direction of the economy are, nearly to a person, quick to add that their own business is healthy.
Moreover, we hear anecdotes and see other evidence suggesting that supply chain problems could be easing, perhaps this year. Data point to a shift in consumer spending toward a more normal mix, away from a heavy concentration in goods, like we saw early in the pandemic, and toward services. As a result, goods prices have climbed more slowly in recent months.
Still, even as certain inflationary pressures appear to be ebbing, we know we have a fight ahead. Food and rent prices, categories that hit lower-income consumers especially hard, continued their climb in July. And while goods prices show signs of moderating, core services inflation continues to drift upward, and inflation in services prices tends to be more persistent than goods inflation. (See the Atlanta Fed's Sticky-Price CPI.) Finally, while the July consumer price index report represented a reprieve in the pace of price increases, it also makes clear that price pressures remain stubbornly widespread and not confined to a few items.
Since August 2021, more than two-thirds of the "market basket" of products and services that federal statisticians use to calculate inflation has posted monthly price increases of greater than 3 percent at an annual rate, while more than half of the market basket has been rising at rates above 5 percent since last September. Keep in mind, we aim for 2 percent inflation. Put simply, those numbers constitute a clear signal to monetary policymakers that price pressures remain elevated and broad-based.
In an environment fraught with unknowns, the last thing the Fed wants to do is add to the uncertainty. While clear analogies to our recent experience are scarce, history is instructive on this point. What economists have come to call stop-and-go monetary policy—tightening in the face of rising inflation but then reversing course abruptly when unemployment rises—arguably helped to fuel inflation during the late 1960s and 1970s. Partly as a result, elevated inflation took root and policymakers ripped it out of the economy only after a pair of recessions in the early 1980s.
Two key questions
As the Committee confronts this immense challenge, I think two key questions should frame the policy debate. One, given that we are at or near a neutral policy stance, where monetary policy neither stimulates nor restricts economic growth, what level of rates would be appropriately restrictive? Two, how long will it take monetary policy to affect GDP and inflation?
Arriving at answers to these questions is not straightforward. We must weigh the risk of our policy action from both sides—moving either too aggressively or too timidly has downsides.
If history ultimately shows that we have not moved aggressively enough, the biggest danger is that inflation becomes entrenched in the minds of consumers and business decision makers. If consumers and companies make spending decisions with the assumption that prices will keep rising, the likelihood increases that inflation will last a long time.
How? The dynamics are reasonably straightforward. If workers think they need to gird their finances against ongoing inflation, then they negotiate for ever-higher pay. In turn, firms will continue to raise prices to offset rising labor costs, which typically represent the biggest single expense for companies. This could trigger a self-perpetuating "wage-price spiral" like we saw during the Great Inflation of the 1970s and '80s. Beyond that, if individuals believe prices will keep climbing, they are more likely to buy today while prices are relatively low, putting additional upward pressure on prices.
That's why we pay such close attention to inflation expectations. If inflation expectations become what economists call "unanchored"—that is, they rise and stay high—then the Committee might have to take drastic action and tighten policy quickly and dramatically, possibly triggering severe economic disruption. While we haven't seen expectations become unanchored—and recent readings in fact show them ticking down slightly—that risk grows the longer inflation stays high.
Like moving too little, being too aggressive with rate hikes entails risk. Most broadly, severe policy tightening can slow economic activity and lead to increased unemployment. In such a scenario, those at the lower end of the income and wealth spectrum tend to suffer first and worst, as they do with the effects of the elevated inflation we are trying to wring out of the economy.
Be assured, my colleagues and I are acutely aware of the risks that our policy decisions carry. I am proceeding carefully and with a healthy dose of humility. The Fed can't fix everything. We understand that today's economy is subject to myriad influences largely beyond the reach of monetary policy. Ongoing supply chain disruptions, geopolitical events such as wars and trade disputes, shortages of available workers, and ongoing wealth and income inequality are important economic forces that monetary policy is not equipped to directly address.
That said, monetary policy is a powerful tool and our most effective means to bring inflation under control, which is a key part of the Fed's mandate. Therefore, as one monetary policymaker, I will stay vigilant and closely monitor not only inflation but also labor markets and an array of economic vital signs that help guide us in calibrating the appropriate policy stance.
In pursuit of that stance, I think it is worth emphasizing that monetary policy does not produce immediate results. History and a convincing body of research tell us that our policy tools work with a lag. Monetary policy tightening tends to affect other economic indicators such as the housing market, which has already notably slowed, before it meaningfully influences underlying inflation. That broad impact makes it critical that we pay attention to how all parts of the economy are evolving and remain steadfast if, as is likely, inflation doesn't fall right away.
Even though it will take time to see the full effect of the policy adjustments we have made to date, I don't think we are done tightening. Inflation remains too high, and our policy stance will need to move into restrictive territory if inflation is to come down expeditiously. That said, incoming data—if they clearly show that inflation has begun slowing—might give us reason to dial back from the hikes of 75 basis points that the Committee implemented in recent meetings. We will have to see how those data come in.
On the bright side, numerous factors give me optimism that a repeat of the "Great Inflation" of the 1960s through the early 1980s is not in the offing. As I noted, economic fundamentals such as labor market growth are holding up. Consumers and businesses in the main are in sound financial shape. Supply pressures, according to our readings, should start easing, maybe this year. Finally, research is finding that more flexible work arrangements such as working from home could limit upward pressures on wage growth that might fuel a wage-price spiral.In closing, let me repeat that my FOMC colleagues and I are firmly committed to bringing inflation down while keeping the economy as strong as possible for American families. Uncertain times like we've experienced during the past couple of years call for a risk management approach to monetary policy. With the harm that higher prices cause Americans, and the risk of slower economic growth that accompanies higher interest rates, I will be resolute, but purposeful, in my view of the appropriate pace of tightening monetary policy.
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 the Advisory Committee on Economic Inclusion at the Federal Deposit Insurance Corporation and Georgia's Partnership for Inclusive Innovation. He is also a member of Harvard University's Board of Overseers. He is serving as the 2021–22 chair of the board of directors of the United Way of Greater Atlanta and is the 2022 chair for the Metro Atlanta Chamber of Commerce.
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 May 2022
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
Other Fed Work
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.
Raphael Bostic. "Quantitative Frightening?," macroblog. January 16, 2019.
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.
Raphael Bostic. "A Big-Picture Look at the Economy. " ECONversations. February 21, 2018.
Economy Matters Podcast Episodes
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.
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.
Message from the President
Raphael Bostic. "Risk Management Is Key to Monetary Policy in Uncertain Times." August 30, 2022.
Raphael Bostic. "Monetary Policy amid Changing Labor Market Dynamics." May 24, 2022.
Raphael Bostic. "Observe and Adapt: Appropriate Monetary Policy in the Face of Inflation." February 1, 2022.
Raphael Bostic. "Defining the Pursuit of Maximum Employment." September 27, 2021.
Raphael Bostic. "A Moral and Economic Imperative to End Racism." June 12, 2020.
Raphael Bostic. "A Message from Federal Reserve Bank of Atlanta President Raphael Bostic." March 17, 2020.