Inflation Fight Is On Track, but the Path to 2 Percent Could Be Bumpy
By Raphael Bostic, President and Chief Executive Officer
October 3, 2023
The Federal Reserve has made significant progress in our campaign to lower inflation.
By the Federal Open Market Committee's (FOMC) preferred gauge—the Personal Consumption Expenditures price index—the inflation rate has fallen to around 3 percent from 7 percent in the summer of 2022.
However, our objective is 2 percent, so we still have work to do.
One more percentage point may not sound like much, but the path from here to the target rate probably will not be a straight, unbroken line. It hasn't been that way yet. The trend of declining inflation over the past 12 months has included occasional blips upward. (See chart 1.)
So, as we continue the campaign to reach 2 percent inflation, the key for the FOMC is to be patient and not overreact to individual data points lest we miss true signals about the economy's evolution amid considerable noise and uncertainty.
By true signals, in the case of inflation I mean the indicators that give us the best read on the trajectory of underlying price inflation. That's different from a one-month number skewed by swings in the prices of a few goods or services.
Our job is to tease out those true inflation signals because they guide us in calibrating monetary policy. To that end, my staff and I follow numerous inflation gauges: the widely known PCE and Consumer Price Index (CPI) measures, of course, but also a dashboard of other instruments the Atlanta Fed designed to discern the true signal.
Taken together, those alternative measures continue to describe slowing underlying price growth. I'll quickly mention one measurement our economists and I think is telling. Among hundreds of individual prices, we aim to determine how many important ones are rising quickly each month. We use 5 percent as a reasonable marker.
In the past four months, on average, 36 percent of prices in the CPI, weighted by expenditures, have risen 5 percent or more. (Weighted by expenditures means the things consumers spend the most money on count the most.)
Granted, a little over a third is higher than the typical 15 to 20 percent of prices that rose quickly each month before the pandemic. But more germane to our current inflation battle, 36 percent is well below the readings of over 60 percent that we saw in 16 of 17 months through February 2023. (See chart 2.)
We are making progress. Furthermore, the Atlanta Fed Business Inflation Expectations survey and conversations with price setters tell me the downward momentum of inflation is likely to continue. Our surveys and grassroots information channels have a strong track record, so I feel confident in their predictive ability.
Labor markets continue to cool
Starting in March 2022, the FOMC has increased the federal funds rate from zero to a range of 5 ¼ to 5 ½ percent as of September. The optimal outcome of the Fed's historic and aggressive monetary policy tightening cycle would be 2 percent inflation in a reasonable time frame without widespread economic pain, the so-called "soft landing" or, as my colleague Austan Goolsbee calls it, the "golden path."
Achieving this outcome will require aggregate demand and supply to come more into balance. We have seen signs of that balance coming closer in many areas.
Consider labor markets. Monthly employment growth in June, July, and August averaged about 150,000. That's a healthy number by historical standards, but considerably lower than last year's monthly average gains of 400,000 jobs.
A deeper look at these numbers makes the breadth of the slowdown even more apparent. Breaking out employment growth by sector, the robust hiring has in recent months been concentrated in a single industry: health care and social assistance. This industry accounts for about 14 percent of total payroll employment. But its share of employment growth has increased in the past year from 20 percent to 60 percent. Thus, over the past three months, employment in the rest of the economy—accounting for 86 percent of jobs—has grown on average by only about 60,000 jobs a month. That compares with 343,000 net new jobs in August of 2022.
Meanwhile, reports from employers suggest the slowdown in the labor market will continue. Executives tell me it is easier to fill openings, turnover is lower, and demand for workers figures to slacken further. Some firms—not a majority—are reducing employment, mostly through means other than layoffs.
Wage growth has slowed a bit, and our surveys and direct conversations with executives indicate that trend will likely persist into 2024.
Risks appear to be more balanced
Despite the good news to date concerning inflation, achieving a soft landing is not assured. And, unlike in the last few years, the risks to my outlook are more balanced.
Many factors could derail inflation's continued progression to our 2 percent target. One wildcard is the price of energy, not only because of its direct impact on the price of consumer staples like gasoline, but also because petroleum is a key ingredient in myriad goods and services and therefore affects those prices too. The price of West Texas intermediate crude oil in early October was around $90 per barrel, rising from under $70 in June. This bears watching over the coming months.
A second risk is the ever-present specter of geopolitical shocks. The war in Ukraine, for example, triggered higher broad-based inflation globally, especially in Europe, and it took many months to unwind.
While these factors represent upside risks to inflation, others could conversely accelerate inflation's decline to our target. Some pandemic-era supports are ending, such as childcare subsidies, expanded child tax credits and student loan forbearance. Their expiration unfortunately will leave some Americans with less money to spend, but that could translate into a steeper reduction in aggregate demand.
Similarly, many American families are spending down the extra savings they've enjoyed. People accrued heftier bank balances in part due to a healthy labor market and pandemic-era supports at a time when lockdowns limited spending options. Today, bankers tell our staff and me that while the balances of many customers remain higher than they averaged before the pandemic, a growing share of depositors' balances are at or slightly below prepandemic levels. For these latter customers, spending could decline significantly, which would put additional downward pressure on inflation.
Lastly, a factor that is a bit trickier to interpret is gross domestic product, or GDP, the broadest measure of economic activity. One line of thinking is that the economy cannot return to balance as long as GDP is running higher than its longer-term trend because anything higher than trend should put upward pressure on prices. On the other hand, elevated GDP will not be inflationary—and could even be associated with disinflation—if worker productivity rises. So, one needs to look to other signals in addition to GDP to conclude that faster economic growth is hurting or helping in the fight against inflation.
The job is not done
As for the stance of monetary policy, I believe it is sufficiently restrictive now. And because I expect the path to 2 percent inflation to be bumpy, I believe our policy rate must remain at this level well into 2024.
Uncertainty and risks mean that the FOMC must stay vigilant to ensure that inflation does not reverse its trajectory. Though momentum is in the right direction, it's too early to claim victory in our fight. Higher prices have inflicted hardship on many American households. That must not happen again.
At the same time, we have made great progress while avoiding the widespread unemployment and slower economic growth that many predicted would need to occur for inflation to have fallen to today's level. That has put a soft landing within reach, and I will be working hard to try to achieve it.
But let me be clear: to realize the durable economic expansion and labor market growth that will benefit all Americans, we must subdue elevated inflation. That is job one.
Wringing inflation out of the economy is hard work.
But this is the work these times require. And we will do it because the FOMC is firmly committed to restoring price stability.
Dr. Raphael W. Bostic took office June 5, 2017, as the 15th president and chief executive officer of the Federal Reserve Bank of Atlanta. He is responsible for all the Bank's activities, including monetary policy, bank supervision and regulation, and payment services. He serves on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
From 2012 to 2017, Bostic was the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the Sol Price School of Public Policy at the University of Southern California (USC).
He arrived at USC in 2001 and served as a professor in the School of Policy, Planning, and Development. His research has spanned many fields, including home ownership, housing finance, neighborhood change, and the role of institutions in shaping policy effectiveness. He was director of USC's master of real estate development degree program and was the founding director of the Casden Real Estate Economics Forecast.
Bostic also served USC's Lusk Center for Real Estate as the interim associate director from 2007 to 2009 and as the interim director from 2015 to 2016. From 2016 to 2017, he was the chair of the center's Governance, Management, and Policy Process Department.
From 2009 to 2012, Bostic was the assistant secretary for policy development and research at the U.S. Department of Housing and Urban Development (HUD). In that role, he was a principal adviser to the secretary on policy and research, helping the secretary and other principal staff make informed decisions on HUD policies and programs, as well as on budget and legislative proposals.
Bostic worked at the Federal Reserve Board of Governors from 1995 to 2001, first as an economist and then as a senior economist in the monetary and financial studies section, where his work on the Community Reinvestment Act earned him a special achievement award.
He serves on many boards and advisory committees, including the Advisory Committee on Economic Inclusion at the Federal Deposit Insurance Corporation and Georgia's Partnership for Inclusive Innovation. He is also a member of Harvard University's Board of Overseers. He is serving as the 2021–22 chair of the board of directors of the United Way of Greater Atlanta and is the 2022 chair for the Metro Atlanta Chamber of Commerce.
Bostic graduated from Harvard University in 1987 with a combined major in economics and psychology. He earned his doctorate in economics from Stanford University in 1995.
The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which covers Alabama, Florida, and Georgia, and parts of Louisiana, Mississippi, and Tennessee. The Bank has branches in Birmingham, Jacksonville, Miami, Nashville, and New Orleans.
Updated May 2022Bostic, Raphael W. April 18, 2020. "Opinion: Fed's Working to Aid Economy, Post-Pandemic Recovery." Atlanta Journal-Constitution.
Bostic, R. and Johnson, M. January 15, 2020. "BankThink: How to keep community banks thriving." American Banker.
Boarnet, M. G.; Bostic, R. W.; Rodnyansky, S.; Burinskiy, E.; Eisenlohr, A.; Jamme, H.; and Santiago-Bartolomei, R. 2020. "Do High Income Households Reduce Driving More When Living near Rail Transit?" Transportation Research Part D: Transport and Environment 80.
Bostic, R. W.; Jakabovics, A.; Voith, R.; and Zielenbach, S. 2019. "Mixed-Income LIHTC Developments in Chicago: A First Look at Their Income Characteristics and Spillover Impacts." In What Works to Promote Inclusive, Equitable Mixed-Income Communities, edited by Mark L. Joseph and Amy T. Khare, cluster #1, section A, no. 6.
Boarnet, M. G.; Bostic, R. W.; Burinskiy, E.; Rodnyansky, S.; and Prohofsky, A. 2018. "Gentrification near Rail Transit Areas: A Micro-Data Analysis of Moves into Los Angeles Metro Rail Station Areas." Research Reports, University of California National Center for Sustainable Transportation.
Bostic, R. W. and Molaison, D. Forthcoming. "Hurricane Katrina: Devastation, Possibilities and Prospects." In Economic and Risk Assessment of Hurricane Katrina, University of Southern California Center for Risk and Economic Analysis of Terrorism Events.
Bostic, R.; Kim, A.; and Valenzuela, A. 2016. "An Introduction to the Special Issue: Contesting the Streets 2: Vending and Public Space in Global Cities." Cityscape 18(1): 3–10.
Bostic, R. W. and Ellen, I. G. 2014. "Introduction: Special Issue on Housing Policy in the United States." Journal of Housing Economics 24: 1–3.
Bostic, R. 2014. "CDBG at 40: Opportunities and Obstacles." Housing Policy Debate 24(1): 297–302. doi:10.1080/10511482.2013.866973.
Bostic, R. W. 2014. "Resilient Economic Development: Challenges and Opportunities." In University of Illinois Chicago Urban Forum, edited by M. Pagano. University of Illinois Press.
Bostic, R. W. and McFarlane, A. 2013. "The Proposed Affirmatively Furthering Fair Housing Regulatory Impact Analysis." Cityscape: A Journal of Policy Development and Research 15(3): 257.
Bostic, R. W.; Thornton, R. L.; Rudd, E. C.; and Sternthal, M. J. 2012. "Health in All Policies: The Role of the U.S. Department of Housing and Urban Development and Present and Future Challenges." Health Affairs 31(9): online.
Graddy, E., with Bostic, R. W. 2010. "The Role of Private Agents in Affordable Housing Policy." Journal of Public Administration Research and Theory 20, special issue: 81–99.
Bostic, R.; Gabriel, S.; and Painter, G. 2009. "Housing Wealth, Financial Wealth, and Consumption: New Evidence from Micro Data." Regional Science and Urban Economics 39(1): 79–89.
Bostic, R. W., with Engel, K.; McCoy, P.; A. Pennington-Cross; and Wachter, S. 2008. "State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms." Journal of Economics and Business 60(1–2): 47–66.
An, X. and Bostic, R. W. 2008. "GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals." Journal of Real Estate Finance and Economics 36(2): 207–31.
An, X.; Bostic, R. W.; Deng, Y.; and Gabriel, S. 2007. "GSE Loan Purchases, the FHA, and Housing Outcomes in Targeted, Low-Income Neighborhoods." In Brookings-Wharton Papers on Urban Affairs, edited by G. Burtless and J.R. Pack. Brookings Institute Press.
Sloane, D. C., with Bostic, R. W. and Lewis, L. B. 2007. "The Neighborhood Dynamics of Hospitals as Land Owners." Lincoln Land Institute publication.
Bostic, R. W., with Longhofer, S. D. and Redfearn, C. 2007. "Land Leverage: Decomposing Home Price Dynamics." Real Estate Economics 35 (2): 183–208.
Bostic, R. W. and Prohofsky, A. 2006. "Enterprise Zones and Individual Welfare: A Case Study of California." Journal of Regional Science 46 (2): 175–203.
Bostic, R. W. and Gabriel, S. A. 2006. "Do the GSEs Matter to Low-Income Housing Markets? An Assessment of the Effects of GSE Loan Purchase Activity on California Housing Outcomes." Journal of Urban Economics 59: 458–75.
Black, H.; Bostic, R. W.; Robinson, B.; and Schweitzer, R. 2005. "Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers." The Financial Review 40(4): 575–86.
Bostic, R. W. with Robinson, B. 2004. "Community Banking and Mortgage Credit Availability: The Impact of CRA Agreements." Journal of Banking and Finance 28: 3069–95.
Bostic, R. W., with Calem. P. S. and Wachter, S. M. 2004. "Hitting the Wall: Credit as an Impediment to Homeownership." In Building Assets, Building Credit: Creating Wealth in Low-Income Communities, edited by N. Retsinas and E. Belsky. Joint Center for Housing Studies and Brookings Institution Press.
Bostic, R. W., with Redfearn, C. 2004. "Book Review [The Color of Credit: Mortgage Discrimination, Research Methodology and Fair Lending Enforcement, by Stephen L. Ross and John Yinger]." Journal of Regional Science 44(1):162–65.
Bostic, R. W., with Aaronson, D.; Huck, P.; and Townsend, R. 2004. "Supplier Relationships and Small Business Use of Trade Credit." Journal of Urban Economics 55(1): 46–67.
Bostic, R. W., with Barakova, I.; Calem, P.; and Wachter, S. 2003. "Does Credit Quality Matter for Homeownership?" Journal of Housing Economics 12(4): 318–36.
Bostic, R. W. 2003. "A Test of Cultural Affinity in Home Mortgage Lending." Journal of Financial Services Research 23(2): 89–112.
Bostic, R., with Robinson, B. 2003. "Do CRA Agreements Increase Lending?" Real Estate Economics 31(1): 23–51.
Bostic, R. W., with Calem, P. S. 2003. "Privacy Restrictions and the Use of Data at Credit Repositories." In Credit Reporting Systems and the International Economy, edited by Margaret J. Miller. Boston: MIT Press.
Bostic, R. W., with Martin, R. 2003. "Black Homeowners as Gentrifying Force? Neighborhood Dynamics in the Context of Minority Homeownership." Urban Studies 40(12).
Bostic, R. W. 2002. "Equal Access to Credit." In 25 Years of Credit Research, edited by Mike Staten. Washington, DC: Georgetown University Press.
Bostic, R., with Canner, G. B. 2000. "Consolidation in Banking: How Recent Changes Have Affected the Provision of Banking Services." The Neighborworks Journal.
Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "Highlights of a Survey of the Performance and Profitability of CRA-Related Lending." Housing America Update.
Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "CRA Special Lending Programs." Federal Reserve Bulletin 86: 711–31.
Bostic, R., with Avery, R. B.; Calem, P. S.; and Canner, G. B. 2000. "Credit Scoring: Statistical Issues and Evidence from Credit Bureau Files." Real Estate Economics 28: 523–47.
Bostic, R., with Canner, G. B. 1998. "New Information on Small Business and Small Farm Lending: The 1996 CRA Data." Federal Reserve Bulletin 84(1): 1–21.
Bostic, R., with Avery, R. B. and Samolyk, K. A. 1998. "The Role of Personal Wealth in Small Business Finance." Journal of Banking and Finance 22: 1019–61Bostic, R.; Bower, S.; Shy, O.; Wall, L.; and Washington, J. September 2020. "Digital Payments and the Path to Financial Inclusion." Promoting Safer Payments Innovation Series no. 20-1.
Raphael Bostic. "Quantitative Frightening?" macroblog. January 16, 2019.
Raphael Bostic. "What Does the Current Slope of the Yield Curve Tell Us?," macroblog. August 23, 2018.
Raphael Bostic. "Thoughts on a Long-Run Monetary Policy Framework" macroblog series:
"Framing the Question." March 26, 2018.
"Part 2: The Principle of Bounded Nominal Uncertainty." March 27, 2018.
"Part 3: An Example of Flexible Price-Level Targeting." March 28, 2018.
"Part 4: Flexible Price-Level Targeting in the Big Picture." April 2, 2018.
Raphael Bostic. "A Big-Picture Look at the Economy. 
" ECONversations. February 21, 2018.
Raphael Bostic (interviewer) and Anthony Orlando. "'These Local Problems Do Have Some National Solutions': A Conversation about Inequality." February 27, 2020.
Raphael Bostic (interviewer) and James Fallows. "Wings over America: A Conversation with Author James Fallows." . January 2, 2020.
Raphael Bostic (interviewer) and Alessandro Acquisti. "Speaking Publicly on Privacy: A Conversation about Digital Privacy." April 2, 2019.
Raphael Bostic (interviewer) and Jerome Adams. "Health Is Wealth": A Conversation with the U.S. Surgeon General." January 3, 2019.
Raphael Bostic (interviewer) and Raj Chetty. "'A Kid Should Have a Fair Shot': A Discussion of Economic Mobility." October 22, 2018.
Raphael Bostic (interviewer) and David Lusk. "'It's a Really Dramatic Change': A Discussion of the Economics of Food." October 12, 2018.
Raphael Bostic. "'It's a Special Job': A Conversation with Atlanta Fed President Raphael Bostic." April 27, 2018.
Raphael Bostic. "Inflation Fight Is On Track, but the Path to 2 Percent Could Be Bumpy." October 3, 2023.
Raphael Bostic. "Striking a Delicate Balance in Making Policy." March 1, 2023.
Raphael Bostic. "On Long and Variable Lags in Monetary Policy." November 15, 2022.
Raphael Bostic. "Risk Management Is Key to Monetary Policy in Uncertain Times." August 30, 2022.
Raphael Bostic. "Monetary Policy amid Changing Labor Market Dynamics." May 24, 2022.
Raphael Bostic. "Observe and Adapt: Appropriate Monetary Policy in the Face of Inflation." February 1, 2022.
Raphael Bostic. "Defining the Pursuit of Maximum Employment." September 27, 2021.
Raphael Bostic. "A Moral and Economic Imperative to End Racism." June 12, 2020.
Raphael Bostic. "A Message from Federal Reserve Bank of Atlanta President Raphael Bostic." March 17, 2020.
