There are signs of "upward pressure" on U.S. inflation as businesses report changes in their views on price growth, Federal Reserve Bank of Atlanta President Raphael Bostic said May 21.
Bostic, a voting member this year on the Federal Open Market Committee, said the Atlanta Fed is "beginning to discern a shift in sentiment" on inflation from its business contacts and its surveys.
Inflation, he noted, is now "effectively on target" after the Fed's preferred inflation gauge had prices growing around the Fed's 2% goal. An overshoot in that target would not be surprising, with inflation likely to stay slightly above 2% for some time, Bostic said in a speech in Atlanta.
Unemployment has also fallen to its lowest levels since December 2000 and is now at 3.9%, putting the Fed "arguably as close" to reaching its dual mandate of maximum employment and stable prices as it has been since the financial crisis.
"On balance, I view the economy as on track and believe we are close to mandate-consistent outcomes for both inflation and employment," Bostic said.
The labor market, he said, is close to or at full employment "but not yet significantly beyond that point," disagreeing with some more hawkish colleagues who say the U.S. already crossed that mark.
"Feedback suggests, as the data show, that labor market conditions have tightened, though I wouldn't characterize the situation as overheated," Bostic said.
Overall, he said, the economy should grow around 2.5% this year but eventually moderate to a rate of 1.75%. U.S. tax cuts do not appear to be playing a major role yet in lifting the economy, he said, noting that he has "received few, if any, reports of a noticeable acceleration in consumer spending" due to the tax changes.
The tax cuts, though, could help lead to a larger-than-expected increase in capital expenditures from businesses. Bostic said Atlanta Fed surveys so far suggest those expenditures "will not grow explosively," though he said other data suggests a larger impact, especially from tech companies.
