Fed’s Bostic in a FT article over the weekend continues to stump for waiting on cuts

Fed’s Bostic in weekend FT article said (the interview did not reference CPI and PPI last week).

  • Expressed that if the Fed cuts rates too soon, inflation might fluctuate unpredictably, potentially stalling completely.
  • He anticipates a slower progression of inflation going forward but does not expect it to reach the 2% target until 2025, with a prediction of ending this year at 2.25%.
  • Believes that interest rates need to remain high until at least the summer, citing the current economic uncertainty in the U.S.
  • Expressed surprise at the rapid decline of inflation so far but feels that markets are overly optimistic about the speed of this decline.
  • Highlighted potential risks from Middle East conflicts and their impact on business costs in his district.

Last Monday, Bostic said he did not expect a rate cut until the 3rd quarter. He also said:

  • Rise in unemployment would be far less than would be typical in the case given the reduction in inflation
  • Fed is in a very strong position right now
  • Fed can let restrictive policy continue to work to slow down inflation; expect the process will remain ‘orderly’
  • Families are catching up to past price increases.
  • Pain of higher prices is easing and sentiment should follow
  • Goods inflation is back to pre-pandemic levels
  • Services inflation is moving more slowly and not expecting big drops
  • Many economic measures are back at levels seen in the years immediately before the pandemic
  • At this point shorter-term measures of inflation, such as over three and six months, are more important. They are pointing in a positive direction
  • Not comfortable declaring victory. Fed needs to ‘remain diligent’ and ‘short run attentive’
  • Top line job numbers have been pretty strong.
  • The recent strength in jobs has been focuses in a relatively small part of the economy
  • Concentrated job growth means that slowing is occurring. Question is if job growth overall falls off a cliff.
  • Sees two 1/4% rate cuts by the end of the year (the Fed forecast 80 basis points of cut in their most recent dot-plot).
  • Risks are balanced with employment slowing, but inflation still above target. Bias is still to stay tight.
  • Policy will still need to be restrictive at the end of the year, but progress on inflation will warrant lower rates
  • Wants to be sure that inflation control is ‘really, really’ there before taking too many steps
  • Outlook now is not for inflation to rebound, but Fed still needs to pay attention
  • Businesses are saying that hiring practices are normalizing
  • Iinflation and employment mandates are not yet in conflict
  • Labor markets remain strong in the aggregate and suggest continued momentum in the economy
  • Plans to work with team over the next six months to get a better view of how balance sheet policy should evolve

This article was written by Greg Michalowski at www.forexlive.com. Source