MNI: Fed's Bostic - Job Weakness Supports Aggressive Moves
Atlanta Fed president says the U.S. economy is effectively back at normal in terms of inflation and employment.
Growing uncertainty about the trajectory of the labor market argued for the Fed's 50 basis point interest rate cut last week and any further signs of material weakening would support more aggressive adjustments, Federal Reserve Bank of Atlanta President Raphael Bostic said Monday.
The first move in the Fed's cutting cycle does not lock in a cadence for further moves, but it puts the FOMC in a better position to respond to incoming data, he said.
"Policy remains in the restrictive range, so if my optimism about inflation is unsatisfied, then the Committee can slow or even halt the pace of further reductions. Should labor markets prove substantially less healthy than they appear at the moment, the 0.5 percentage point reduction puts us in a better position to adjust than a more modest cut would have," he said in remarks prepared for an European Economics & Financial Centre event.
"Any further evidence of material weakening in the labor market over the next month or so will definitely change my view on how aggressive policy adjustment needs to be." (See: MNI INTERVIEW: Fed Can Cut Gradually If Jobs Stay Strong- Kohn)
ECONOMY EFFECTIVELY NORMAL
The U.S. economy has effectively met the Fed's price stability and full employment objectives, and monetary policy should be headed toward neutral, he said.
"Progress on inflation and the cooling of the labor market have emerged much more quickly than I imagined at the beginning of the summer. In this moment, I envision normalizing monetary policy sooner than I thought would be appropriate even a few months ago," he said.
The labor market is not yet "flashing red," but employment growth over the past year has not been as strong as initial data releases suggested, he noted.
"Risks to our employment mandate have grown as labor markets have weakened, such that the possibility we might see broad weakness has increased relative to 12 or 18 months ago."
Meanwhile, price pressures are diminishing quickly and broadly after flaring early in 2024, he said. Core PCE inflation came in at an annualized growth rate of 1.7% in the three months through July, and CPI for August was 2.5%, within 2.3%-2.6% range that's consistent with 2% PCE, he said.
"Inflation has fallen faster than I had expected, and the most recent data solidify my conviction that the US economy is indeed sustainably on the path back to price stability."