The Fed will try to avoid “deep, deep pain” for the US economy, Bostic says

The Federal Reserve is trying to engineer an economic slowdown to bring inflation under control but will seek to avoid a protracted recession, Atlanta Fed President Raphael Bostic said Sunday.

“We need a slowdown. This is not a question. But I think that at the Federal Reserve we will do whatever it takes to avoid deep, deep pain,” Bostic said during an interview with CBS News’ Face the Nation.

Last week, the Fed raised interest rates by a whopping 0.75 percentage point – the third straight rate hike of this magnitude. That brought the policy rate to a range of 3% to 3.25%. Fed officials were also planning other big moves this year that would take the rate to 4.4%.

Economists fear that moving so quickly could “cramp” the economy and cause a recession.

But Fed officials believe the economy can slow and still avoid a severe recession. This is called a “soft landing”.

Bostic said he was optimistic about the economy because the labor market is creating lots of jobs every month and there is “positive momentum.” This could cushion the blow from higher interest rates, Bostic said.

“I actually think the economy has some capacity to absorb our measures and slow down in a relatively orderly manner,” he said.

“There will be some job losses,” Bostic said. However, there is a “really good chance” that the number of jobs lost will be lower than in the past, he added.

The Atlanta Fed President said some of the tightness that has fueled higher prices is beginning to ease.

“Over the next few months, we will see that gap between high demand and lower supply narrowing significantly,” Bostic said, which will translate to lower inflation.

The market is worried that the Fed is looking at the economy through rose-colored glasses.

Adding to investor concerns, Nouriel Roubini, known as “Dr. Doom” now predicts a long and ugly global recession due to its dire predictions.

Stocks DJIA, -1.62% SPX, -1.72% suffered a broad sell-off on Friday amid heightened recession fears. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.687% rose to 3.69%.