Fed's Bostic only sees one rate cut this year
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Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic struck a cautious chord on Monday, warning that economic uncertainty will continue to weigh on Fed decision-making as the US's self-styled trade war continues to build pressure within the economy. Bostic also pushed back his own forecasts of when inflation would finally cool to the Fed's 2% target, and trimmed his rate cut expectations for the remainder of 2025.
Key highlights
There is a lot of uncertainty.
We don't really know where the economy is going to go.
We won't get back to 2% inflation until early 2027.
Families and firms are telling the Fed they don't really know where the economy is heading.
I was at two rate cuts this year, now only see one.
I am expecting inflation to be very bumpy.
The appropriate path for policy has to be pushed back.
I am hearing more concern about the path of the economy, but data has not shown that yet.
Business contacts think prices will go higher.
I question whether consumer sentiment will be a leading indicator of weaker activity.
Businesses think price pressures are moving higher, but are also bullish on sales.
Labor markets are still tight.
Businesses are expecting to pass tariff costs along.
Wage pressures are not outsized according to businesses.
I am hearing about labor shortages in some sectors that may be linked to tighter immigration.
It is unclear if tariffs will be a one-time hit to prices. Historically tariffs have meant a one-time jump in prices, that may be questionable this time.
The Fed does not want to move in one direction and then have to undo it, it is better to be more patient.
Not jumping to stagflation yet.
It is paramount that the Fed return inflation to 2%, if the economy does weaken, we will manage that when it happens.
Fed actions may have to be larger once the direction is clear.
The current Fed funds rate seems well calibrated, we will have to see whether it needs changing.
My preference is to stay at this level of QT for a while before we stop.
Slowing down to make sure the Fed does not go too far is appropriate.
I would consider selling MBS, but have not had any conversations about it.
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