Here's How the Fed Might Adopt Bostic's Rate Pause in September

Federal Reserve Bank of Atlanta President Raphael Bostic has cracked open the door to discussing a September pause in the central bank’s aggressive rate hikes -- a move that will only be on the table if inflation falls more than expected over the summer.

The Federal Open Market Committee is expected to raise interest rates by a half point in June and July, boosting its policy rate to a 1.75% to 2% target range. That would lift it to the lower edge of the Fed’s estimate of the neutral rate that neither stimulates nor restricts growth. By September, the Fed will also be shrinking its balance sheet by $95 billion a month, which is a second tool that officials are using to tighten policy.

Pausing at the Fed’s September 20-21 meeting -- which Bostic said on Monday might make “sense” -- will probably require two tough conditions to be met: inflation slowing meaningfully and signs that the US economy is cooling enough to reduce future price pressures.

Chair Jerome Powell has already set a high bar for policy makers to put their plans on hold, vowing on May 17 that officials will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat. Yet policy makers will also look for a softening job market for signs that price pressures will keep ebbing.