Federal Reserve bank leader defends interest-rate hikes

Inflation needs to decline further before the Federal Reserve considers ending its more than yearlong string of quarterly interest-rate hikes meant to slow breakneck economic growth, the Federal Reserve Bank of Atlanta chief executive told a student gathering this week at Broward College.

Although he acknowledged consumer price increases have slowed to less than half of their 9.1% peak in June 2022, Raphael Bostic, CEO and president of the Fed’s Atlanta bank, said U.S. inflation remains more than double the Fed’s target of 2%. “That’s a problem,” he said.

Bostic spoke Thursday afternoon to about 60 students and local business leaders at Broward College’s A. Hugh Adams Central Campus in Davie.

College President Gregory Adam Haile, deputy chair of the Atlanta Fed, led a 50-minute question-and-answer discussion with Bostic. Earlier in the day, Bostic had an informal one-hour chat with students.

The Atlanta Fed is home of the Federal Reserve’s sixth district, which covers Alabama, Florida, Georgia, and parts of Mississippi and Tennessee.

South Florida continues to be hard hit by the rising cost of living, particularly in its housing sector. Bostic noted those and other challenges facing the regional economy.

The Miami-Fort Lauderdale-West Palm Beach metropolitan area led big cities nationwide with a 9% jump in consumer prices during the 12 months that ended in April, according to the U.S. Bureau of Labor Statistics.

That high inflation improved somewhat, increasing 6.9% during the 12 months ending in June. However, that still showed consumer prices in South Florida were rising more than twice the national rate of 3.0%.

What’s more, the core consumer price index for the region for all goods and services, excluding food and energy costs, jumped 9.6% for the 12 months ending in June. Housing costs were the prime drivers, with home rents soaring 17% from a year ago and prices to buy homes increasing 16%.

Underscoring what residents, business and local leaders have known for years, Bostic said housing affordability is a huge challenge in South Florida.

“If you’re a lower wage worker in this region, you’re going to have a hard time,” he said. “That will put tensions on societies and economies.”

He thinks the region is still grappling with the effects of all the wealth that came into South Florida between 2020 and 2022 in the pandemic, especially the newcomers from the Northeast and California investors. Many of them moved to Miami, or nearby, and some were owners who relocated their entire businesses.

“Because it was cheaper than where they were coming from, they could pay cash and change the whole homeownership dynamic in a pretty fundamental way,” Bostic said of South Florida. “That still is yet to work itself through.”

He advised South Floridians to take a more holistic approach to solving the housing affordability problem. He recalled his days as a professor at the University of California, when people would drive hours to their jobs because they could not afford to live any closer.

At the same time, South Florida also provides a barometer of the nation’s mood, he said.

With its beaches, residents and tourists, “you get to see a lot of how people are letting their steam off, how they are finding joy in their day-to-day life,” Bostic said. “The willingness to do that, or not do that, is a sign of where the collective U.S. economic psyche is.”

As far as the U.S. economy goes, one piece of optimistic news is that business supply-chain problems, laid bare in the early days of the pandemic in 2020, seem to be resolved. “The information I’m hearing is supply chains are not really the issue anymore,” he said.

Back to inflation, Bostic acknowledged the strong criticism the Fed has drawn for continuously hiking interest rates, because of the direct spillover effect that has on consumer and business borrowing costs.

At its July 26 meeting, the Federal Reserve Board in Washington, led by Chairman Jerome Powell, raised its key interest rates to between 5.25% and 5.5%, a 22-year high — the 11th increase since March 2022.

That has made everything from mortgage loans to buy a home to commercial loans to expand a business much more expensive. It has also slowed new hotel construction.

At the end of August, the average for a 30-year fixed-rate mortgage was 7.18%, according to Freddie Mac. One year earlier, that average mortgage rate stood at 5.13%.

Bostic said he’s been having conversations with lower-income communities in South Florida, as part of a series in which Fed officials visit local residents. He’s asked them what hurts them more: inflation or higher interest rates?

“The uniform answer, which surprised me, was inflation,” he told the group at Broward College.