MNI: Fed's Bostic Sees 2 Cuts This Year But High Uncertainty
MNI (WASHINGTON) - Federal Reserve Bank of Atlanta President Raphael Bostic said Thursday he maintains a baseline view of two quarter-point interest rate cuts this year but that could increase or decrease in light of high uncertainty over Trump administration policy changes.
"My outlook for this year still has two rate cuts in it. I do think the uncertainty around that is pretty significant," he told reporters on a call. "While that's my baseline expectation, there's a lot that's going to happen that could influence that in both directions."
If growth continues to be strong, the labor market solid and inflation moves down, then rates should head toward neutral, he said. The FOMC left the fed funds rate target unchanged at 4.25%-4.5% last month.
"We're in moderately restrictive territory. I think neutral is 3%-3.5%, so there's still some distance to go before we get there."
INFLATION UNDER CONTROL
The suite of policy changes coming from the Trump administration -- tariffs, immigration restrictions, deregulation and tax cuts -- make forecasting difficult for both the Fed and U.S. firms, Bostic said.
Most business contacts in the Atlanta Fed region continue to expect 2025 to be a "pretty solid year" with robust sales and a "back to normal" employment base with wages growing at pre-pandemic levels, he said. (See: MNI: Fed In Holding Pattern As Inflation To Stay High-Ex-Staff)
"They're not seeing that they have a lot of pricing power, which are telling me that inflation is likely to stay under control or continue to move to 2%," he said. Inflation expectations also continue to look anchored at 2%, Bostic said, citing the Atlanta Fed's own survey of firms' inflation expectations.
QT
As the Fed approaches the end of its QT program, it's prudent to be more cautious, Bostic said. The minutes of the January FOMC meeting released this week revealed some policymakers suggested pausing or slowing runoff until Congress resolves its debt ceiling negotiations as it may cloud the signals on the abundance of bank reserves in the system.
"We've reduced the balance sheet by a considerable amount from the pandemic at emergency levels, and we know that there's going to be a point where we're going to be in an ample reserves environment, and we want to make sure that we don't overshoot or mess that up. We're trying to not create volatility in money markets," he said.
"It's only prudent that we become more cautious as we get closer to levels that might be consistent with going too far."