Fed officials are working hard to bring inflation back to their target of 2%. However, despite inflation easing slightly to 4.9% yoy in April, the risk of US defaulting if Congress does not raise the debt ceiling still poses a challenge for the central banks. Rafael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, discussed the current problems facing the Fed in an interview with Marketplace host Kai Risdal. The conversation covered various topics such as the need to maintain voluntarism in decision-making, dealing with the coming difficult months, the state of the banking industry, and the debt limit.
Bostic explains that the Fed’s current policies of tightening are beginning to show up in the economy, but the speed at which things will slow down is still uncertain. He emphasizes the importance of focusing on inflation and not being bound by particular moves. Moreover, despite expectations of stress in the labor market as inflation approaches its target, failure to bring inflation back to the 2% target will be even more problematic for the economy. Therefore, maintaining a focus on inflation remains crucial.
Regarding the state of the banking industry, Bostic explains that most bank deposits are stable, and banks have a lot of capital. Also, their customers are not nervous, but the banks are approaching their lending standards to prevent liquidity and credit risk. Bostic reassures that the degree of tightening so far has not been severe, and no significant credit crunch is expected.
Finally, Bostic emphasizes that the debt limit issue needs to be resolved because it undermines the entire trust and credibility of the US government, which is not good for the economy or the average American. In conclusion, Marketplace relies on financial support to keep reporting on the things that matter to people, and a $5/month donation can make a difference.