MNI: Bostic Sees 2 Fed Cuts In '24, Wants QT Long As Possible
Atlanta Fed president says risks are balanced, but flags threat of pent-up exuberance when interest rates are lowered.
Atlanta Federal Reserve President Raphael Bostic said Monday his base case remains for two rate cuts this year, likely starting in the third quarter, and does not anticipate reductions at back-to-back meetings, adding he would like quantitative tightening to continue at the current pace for as long as possible.
Bostic said risks to the outlook appear balanced but flagged some concern that the start of rate cuts could unleash a fresh wave of demand and pent-up exuberance.
"We have some time to make sure that we get to 2%," Bostic told reporters on a conference call. "We are not seeing degradation in the labor market," he said, noting price pressures are still widespread and broader than preferred. "A lot of it will depend on sort of what the response looks like and how things play out," he said about the pace of rate cuts in the second half of the year.
"The January inflation readings came in surprisingly high, the latest reminder that the path to price stability is not a straight line," he said in an essay released Monday. "Only when I gain that confidence will I feel the time is right to begin lowering the federal funds rate to dial back restrictive monetary policy," Bostic said, telling reporters that the last mile may be the hardest.
QT AS LONG AS POSSIBLE
Bostic also said he would like for the Fed to roll assets of its balance sheet at the current pace for as long as possible. "I'm hopeful that we can continue the pace that we're at for as long as possible."
"We've been in an emergency stance with our balance sheet for a long time. As we get further from the most acute moments in that emergency I think it's appropriate for us to return to a more normal posture," he told reporters. (See MNI: Fed Could Soon Taper QT But Halt Further Out - Staffers)
"As long as we see the overnight reverse repo market be active at significant volumes that says to me that money markets are still functioning, financial markets are still functioning, and we can continue to keep our pace," he said.
"As we get to a place where those markets are not being employed as frequently, then we'll have to really look at some other measures to get a get a sense of the degree of liquidity that's in these markets, and then that will really be a time to start talking about whether the appropriate moment to start to start reducing the pace."
Bostic said he does not yet have a base case on when that should be.