Fed's Bostic Says Higher Peak Rate on Table After Jobs Blowout

Federal Reserve Bank of Atlanta President Raphael Bostic said January’s strong jobs report raises the possibility that the central bank will need to increase interest rates to a higher peak than policymakers had previously expected.

If a stronger-than-expected economy persists, “It’ll probably mean we have to do a little more work,” Bostic told Bloomberg News in a phone interview on Monday. “And I would expect that that would translate into us raising interest rates more than I have projected right now.”

Bostic reiterated that his base case remains for rates to reach 5.1%, in line with the median of policymakers’ December forecasts, and stay there throughout 2024. A higher peak could come through an additional quarter-point hike beyond the two currently envisioned, he said, while not ruling out a half-point increase.

Two-year Treasury yields ticked higher after the publication of Bostic’s remarks and US stocks fell, though they later rebounded.

Investors have lifted where they see rates peaking this year and are now in line with that projection following the much stronger-than-expected January employment report. Employers added 517,000 new jobs last month while unemployment fell to 3.4%, the lowest since May 1969.

The Federal Open Market Committee raised its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% last week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.