Economy set for 'solid growth' but slower in 2019, Atlanta's Federal Reserve Bank president says

The growth rate in the U.S. economy may be slowing, but the head of the Federal Reserve Bank of Atlanta expects "another year of solid growth" in 2019 and sees no signs yet of an economic recession any time soon.

Dr. Raphael Bostic, the president of the Atlanta Fed and a member of the Federal Open Markets Committee that helps set U.S. interest rates, told the Chattanooga Area Chamber of Commerce Wednesday the economy is likely to grow at a slower pace in 2019 than last year, which he said ended up being "a stellar year" with the fastest growth rate during the current 9-year-old recovery.

"This is an economy that, by all appearance, ought to be able to stand on its own, without much support, or accommodation, from monetary policy," Bostic said during the Chamber's annual Economic Outlook breakfast.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, speaks with the editorial board at the Chattanooga Times Free Press in Chattanooga, Tennessee, Wednesday, January 9, 2019.

But since last fall, Bostic said investors and business leaders are voicing more concerns and uncertainty about the economy, which could push the central bank to ease back on its pattern of interest rate increases during the year ahead. With inflation still within the Fed's 2 percent annual target, Bostic suggests the Fed "can be patient" before raising interest rates again.

Despite President Trump's tweets against raising rates, the Federal Reserve raised interest rates in December for the fourth time in 2018 - and the ninth time since the central bank began normalizing rates in December 2015. At its December meeting, the Fed also signaled plans to raise interest rates twice this year, boosting the Federal funds rate to between 2.75 percent and 3.0 percent. Bostic said he is looking at only a single rate hike this year, although he stressed he remains open to making changes as the economy develops.

Bostic supported the December rate increase, but he urged caution before the Fed raises rates again, noting the global slowdown, uncertainties over trade and growing signs of worry over the stock market and the federal government shutdown. Although stocks have gained in value in the past four sessions, 2018 was the worst year for stocks in 10 years.

Bostic told reporters he wouldn't rule out even a rate cut if conditions warranted more stimulus, and he suggested there is no urgency to moving rates higher immediately.

"We need to signal we are not locked into a particular trajectory for policy," he said.

Bostic said the economy of the Southeast is similar to the U.S. as a whole and should grow this year at a slower pace that in 2018 "as the temporary effects from fiscal stimulus and tax reform begin to fade."

Next year, the pace of the recovery is likely to slow still farther to below 2 percent by the end of 2020, but Bostic is not forecasting any recession in the near term.

Inflation also remains relatively tame and close to the Fed's 2 percent target, Bostic said. With the jobless rate is near a 50-year low, Bostic said employers "have been increasingly frustrated by the difficulty in filling vacancies and retaining staff.

"Workers are leaving their current jobs for new ones at a high rate, yet firms are reporting that it is taking longer and longer to fill vacancies," he said.

Nonetheless, Bostic said the Fed hasn't seen any evidence that growth in labor cost have grown significantly beyond productivity and inflation growth.

Christy Gillenwater, president of the Chattanooga Area Chamber of Commerce, praised the resiliency of Chattanooga, which over the past generation has transformed itself from a manufacturing and textile-based economy to a more diverse, technologically sophisticated and entrepreneurial city. The Chattanooga region has captured more than $5 billion of new business investment over the past decade and in 2017 enjoyed one of the fastest growing wage rates among mid-sized cities.

Gillenwater noted that employment growth has not matched such stellar mid-sized cities as Provo, Utah, Fayettevile, Arkansas or Charleston, South Carolina, but she said Chattanooga is gaining more attention as a great place to live or start a business.

Steve Case, the co-founder and former CEO of AOL, brought his "Rise of the Rest" movement to Chattanooga last year and praised the Scenic City as one of the mid-sized towns "that can go the distance." Business Insider last week named Chattanooga as the fourth best city in the country to buy a house because it is one the places "where jobs are plentiful, construction is booming and young people are moving in."

Last year, Hamilton County permitted 923 new house, collectively worth more than $149 million, which was nearly double the 597 homes started three years earlier.

Chattanooga Mayor Andy Berke said the population growth of Chattanooga was the fastest of any of Tennessee's four biggest cities in the most recent census and metro Chattanooga added jobs in 2017 at twice the U.S. rate.

But local job growth last year slowed to only about half the pace of the prior year and Bostic said the tight labor market will make it harder to sustain the same pace of job growth.

"It is important to stress that this lower pace of growth does not show fundamental pessimism about the economy," he said. "Rather, it mostly reflects the reality that the size of the working age population-the key input into producing goods and services-is expected to grow much more slowly over the next decade or so than it has in the past."

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.