MNI: Fed’s Bostic Sees Rate Cut At Year-End, Then Path To Neutral Level

Federal Reserve Bank of Atlanta President Raphael Bostic is sticking to his expectation for one interest-rate cut later this year, before entering a path to a neutral interest rate level. 

"Taking all the circumstances into account, I continue to believe conditions will likely call for a cut in the federal funds rate in the fourth quarter of this year. Still, the pandemic years have brought many surprises, and so I’m not locked in to any particular policy path," Bostic wrote in a blog published Thursday emphasizing flexibility. "There are plausible scenarios in which more cuts, no cuts, or even a raise could be appropriate. I will let the data and conditions on the ground be my guide."

Bostic told reporters on a conference call he expects "slow progress this year" on inflation with "loosening but not loose" labor markets, as employers believe wage growth will continue to soften. "I think we are on a long-term arc," he said. "I don't have us [at 2% inflation] in the next 8 to 12 months, so this is going to be a much longer experience, and that's why I'm preaching patience. I'm preaching vigilance."

The Fed has to be open to the many different routes the economy can take and the many different policy prescriptions that could entail, he told reporters, but the first interest rate cut would mean the Fed has confidence inflation is on a path to 2%. (See: MNI INTERVIEW: Fed Will Stay Patient On Rocky Road To 2%-Evans)

PATH TO NEUTRAL

When asked whether there the July and September FOMC meetings are live and there is a plausible case to lower rates then, the Atlanta Fed chief said "every meeting is a live meeting." Bostic noted that inflation need not get all the way to target for him to favor reducing restrictiveness in monetary policy. 

"I think the first move would be a sign that I have confidence that we're going to be going back to 2%," he told reporters. "In that context, ultimately it will be the first step in any move of our policy rate to something akin to a neutral level."

Bostic said he penciled in the June Summary of Economic Projections one rate cut for 2024 and four rate cuts in 2025, acknowledging he did not make adjustments for the CPI inflation data that was released that morning. 

"That suggests that there is a pathway, and the pathway is clearly towards whatever neutral level that turns out to be," he said. (See: MNI INTERVIEW: Quarterly Fed Cuts To Start In Dec - Reinhart)