Fed rate hike, rate reduction both "on the table": Bostic

SAN FRANCISCO (Reuters) – The Federal Reserve's monetary policy stance does not guarantee interest rates will be maintained for the rest of the year, Atlanta Federal Reserve Chairman Raphael Bostic said Friday. .

"Staying up is definitely an option, but depending on the reaction of the economy, rising or falling rates are both on the table for me," Bostic said at the conclusion of the meeting. a conference on monetary policy at the San Francisco Fed.

The comments were among the first made by a Fed decision-maker since the US central bank made an unexpected change last Wednesday. The forecast released after its two-day political meeting showed that 11 of the 17 Fed policymakers were not expecting any rate hike this year, compared to just two who announced it in December.

President Jerome Powell discussed the low inflation rate, the slowdown in the global economy and the risks of patience, such as the trade tensions between China and China, on the need to remain patient "during some time". .

After the Wednesday announcement, the financial markets, which had already considered any possibility of rate hikes this year, have begun to anticipate a rate cut next year.

And on Friday, a key feature of the US Treasury bond market reversed for the first time since 2007, with long-term rates being lower than short-term rates in what is traditionally a harbinger of the recession.

Bostic, who spent most of his speech touting the benefits of the Fed's new approach to monetary policy, took the time to send a direct message to markets about what he had described as inaccurate reading of the Fed's intention.

The Fed's patience, he says, does not mean it has ruled out any rate hike for the rest of the year and is not limiting its options.

"I am open to all possibilities because we want to support sustained economic expansion, favorable labor market conditions and inflation close to the symmetrical target of 2% of the committee," said Bostic, referring to the Federal Open Market Committee. "Markets should understand this, so I hope I have clearly stated my position."

When asked about the level of inflation likely to cause an increase in rates, he replied that he was not focused on an exact point estimate. Inflation could rise a few decimal points above the Fed's 2% target and not worry, he said.

But if other economic data, including labor market data, as well as inflation figures "suggest that the economy may overheat, then I think I would not be comfortable moving out", did he declare.

In February, Bostic said he expected the Fed to raise interest rates once this year, after stepping up efforts in 2018. He did not say number of rate increases that he now deems appropriate.

The Fed is increasingly worried about achieving its 2% inflation target and fears that the Trump administration's tax cuts and deregulation will release faster economic growth.

The same goes for the financial markets.

The gap between 3-month T-bill and 10-year note yields has fallen below zero for the first time since 2007, after manufacturing data in the United States failed to meet expectations. .

Earlier Friday, data from Germany showed that the factories sector continued to contract, another worrying sign for the global economy.