Key Points:
- Atlanta Fed President Raphael Bostic indicated readiness to lower interest rates even as inflation remains above target.
- Bostic’s comments align with market expectations of a rate cut at the Sept. 17-18 meeting.
- The shift in focus suggests Bostic is increasingly concerned about the cooling labor market.
Atlanta Federal Reserve President Raphael Bostic expressed readiness to begin cutting interest rates, despite inflation still running higher than the central bank’s target. Bostic, previously seen as one of the more hawkish members of the Fed, pointed out a growing focus on the labor market as signs of softening emerge.
“I believe we cannot wait until inflation has actually fallen all the way to 2 percent to begin removing restriction because that would risk labor market disruptions that could inflict unnecessary pain and suffering,” Bostic explained in a message posted on the Atlanta Fed’s website.
Inflation in July was at 2.5%, with core inflation (excluding food and energy) at 2.6%, slightly above the Fed’s 2% target. Bostic did not specify the timing or magnitude of the rate cut but his stance aligns with market expectations. Many anticipate the Federal Open Market Committee (FOMC) will cut its benchmark borrowing rate by at least a quarter percentage point at the upcoming meeting on Sept. 17-18.
As a voting member of the FOMC this year, Bostic’s position holds significant influence, bolstering the likelihood of the Fed enacting its first rate cut since the emergency measures taken during the onset of the Covid-19 pandemic over four years ago.
Bostic’s comments come ahead of a key nonfarm payrolls report, which is expected to show signs of a cooling labor market. He noted that feedback from business leaders in the Atlanta area indicates a slowdown in economic activity.
“Rest assured, I do not sense a looming crash or panic among business contacts. However, the data and our grassroots feedback describe an economy and labor market losing momentum,” Bostic stated. “The upside to this is that the slowdown in activity is feeding a continuing, welcome decline in the pace of inflation.”
Bostic pointed to several indicators suggesting that inflation is easing as the labor market slows. He emphasized the need to balance both inflation control and employment stabilization.
“Given the circumstances before us — eroding pricing power and a cooling labor market — I’ve rebalanced my focus toward both sides of the dual mandate for the first time since early 2021,” he added.
Source: CNBC
