Fed’s Bostic reduces rate cut expectations due to inflation concerns

Fed’s Bostic on rate cuts: Atlanta Federal Reserve Bank President Raphael Bostic announced on Friday a revision to his earlier projection, now foreseeing only one quarter-point interest rate cut this year instead of the previously anticipated two.

Bostic attributed this adjustment to persistent inflation and stronger-than-expected economic indicators.

Expressing a diminished confidence in the decline of inflation towards the Fed’s 2 per cent target compared to December, Bostic cited pricing pressure concerns as the reason behind scaling back the rate-cut outlook and delaying the expected commencement date.

Previously, Bostic had hinted at potential rate reductions starting as early as this summer, although the Fed is widely expected to initiate cuts beginning in June.

Bostic remarked on the economy’s resilience, noting recent data prompting him to nearly double his estimate for US economic growth in 2024 to 2 per cent.

He also observed little change in the current unemployment rate of 3.9 per cent, which was previously deemed inflationary.

While Bostic believes inflation is gradually declining, he expressed concern over the continued presence of items exhibiting significant price increases, suggesting a slower-than-anticipated moderation.

Bostic stressed upon a shift in the balance of risks towards exercising patience before implementing monetary policy easing, underscoring his role as a voter this year on the US central bank’s interest rate policy.

During the recent Federal Open Market Committee meeting, the Fed maintained rates within the range of 5.25 per cent to 5.5 per cent, with most policymakers still anticipating at least three rate cuts in the year ahead.

However, new projections reflected slower progress on inflation alongside ongoing economic strength.

Bostic highlighted the positive aspects of an economy surpassing its potential growth rate, coupled with historically low unemployment levels and moderating inflation, suggesting that such conditions provide leeway for exercising patience.

(With Reuters Inputs)