Atlanta Fed’s Bostic revises rate-cut outlook amid persistent inflation

Atlanta Federal Reserve Bank President Raphael Bostic has adjusted his interest rate projections, now anticipating only a single quarter-point rate cut this year instead of the previously anticipated two.

Bostic cited concerns over persistent inflation and stronger-than-expected economic indicators for this revised outlook.

Speaking to reporters after a forum, Bostic expressed decreased confidence in inflation trends, stating, “I’m definitely less confident than I was in December” regarding the likelihood of inflation falling towards the Fed’s 2 per cent target. This concern prompted him to scale back his rate-cut expectations for the year and postpone the anticipated start date.

Previously, Bostic had suggested that rate reductions might commence as early as this summer. However, he now believes that the Fed is likely to initiate rate cuts beginning in June, aligning with widespread expectations.

Bostic highlighted the resilience of the economy, noting that recent data has led him to double his 2024 US economic growth estimate to 2 per cent. Despite this positive outlook, he acknowledged minimal change in the current 3.9 per cent unemployment rate, a level historically associated with inflationary pressures.

While Bostic remains optimistic about a downward trajectory in inflation, he expressed concerns about the pace of this decline and highlighted continued price increases in certain sectors.

The shift in the balance of risks towards delaying monetary policy easing reflects Bostic’s cautious approach. As a voting member on the Federal Open Market Committee (FOMC) this year, his remarks offer insight into the Fed’s evolving interest rate policy following its recent meeting.

At the meeting, the Fed opted to maintain rates within the range of 5.25 per cent to 5.5 per cent, with most policymakers still anticipating multiple rate cuts throughout the year. However, the Fed’s updated projections reflected a more conservative stance on inflation and reinforced the overall strength of the economy.

Bostic stressed that the positive aspects of the current economic landscape, including above-potential growth, low unemployment, and moderating inflation. These factors provide room for the Fed to exercise patience in its monetary policy decisions.

As the Fed continues to navigate economic uncertainties, Bostic’s revised outlook underscores the central bank’s commitment to maintaining a delicate balance between fostering economic growth and addressing inflationary pressures.