Government spending is “somewhat of a headwind” for getting high inflation back in check, Atlanta Federal Reserve President Raphael Bostic said Friday at the Jackson Hole, Wyoming, economic summit.
Bostic, speaking to FOX Business’ Edward Lawrence, said that while continued government spending works to some extent against the Fed’s goal to wrestle inflation closer to 2%, it does “lead to benefits for the economy” and “help the economy to be more resilient.”
“It means we’re going to have probably to do a little more,” Bostic added. “But even the student loans thing that happened earlier this week, my projection is that’s a very small impact. And so, we’re going to have to do what we have to do, and that’s what I’m going to focus on to make sure we get inflation back in range.”
President Biden announced this week that his administration would cancel up to $10,000 in federal student loans for individuals making less than $125,000 a year and up to $20,000 for individuals who received Pell grants. A recent analysis by the Committee for a Responsible Federal Budget argued Biden’s student loan forgiveness plan could worsen the ongoing inflation crisis.
The Fed has been taking steps to cool inflation, such as approving two back-to-back 75 basis point increases. Another significant interest rate hike may occur in September, officials have suggested.
Historically, it has taken about six to 18 months for the Fed’s policies to “flow-through,” so it could be into 2024 “before we get to that space,” Bostic said.
“But, you know, a lot has happened during the pandemic, and the economy has been able to respond to things much faster than we’ve seen historically, so I’m holding out hope it’ll be faster than that,” he said. “But it wouldn’t surprise me if it took till 2024 or even 2025.”
Bostic’s comments come after Federal Reserve Chairman Jerome Powell indicated in a speech Friday that efforts to reduce inflation could bring “some pain to households and businesses.”
Data released Friday by the Commerce Department showed the core personal consumption expenditures price index, which excludes food and energy, eased slightly in July, climbing 0.1% from the previous month. It remained near a four-decade high, however.