Interest Rate Cuts Remain a Possibility Amid Economic Uncertainties, Says Atlanta Fed President

Raphael Bostic, President of the Atlanta Federal Reserve, has indicated that interest rate cuts are still being considered this year. In a recent interview, Bostic stated that he is not ruling out any options but also cautioned against making hasty decisions.

Inflationary Pressures Resurface

The Fed had previously paused interest rate adjustments after three consecutive cuts, citing concerns about inflation. However, a higher-than-expected inflation reading in January has prompted policymakers to reconsider their stance. Core CPI prices, excluding volatile food and energy costs, rose 0.4% in January, the largest monthly increase since 2023.

Fed's Dilemma

Bostic acknowledged that the Fed had not anticipated inflation to decline linearly to its 2% target. He emphasized the need to carefully assess whether the recent inflationary data represents a trend or a temporary setback. Markets have revised their expectations for Fed actions this year, with traders predicting only one rate cut later in 2025.

Economic Impact of Trump Administration Policies

Bostic expressed concerns about the potential impact of the Trump administration's proposed tariffs, tax cuts, and deregulation initiatives. He noted that businesses have expressed mixed views on the inflationary or investment-stimulating effects of these policies.

Balancing Stimulus and Inflation

Bostic asserted that the Fed's current benchmark rate is sufficient to curb inflation. However, he recognized the need to remain vigilant, considering the potential for inflationary pressures from external factors.

Cautious Approach

The Fed's cautious stance was evident in the minutes from its last meeting, released alongside Bostic's comments. Policymakers expressed concern about inflation and the potential impact of new trade and immigration policies.

Balancing Act

Bostic emphasized the difficulty in distinguishing between persistent and temporary inflationary pressures. He suggested that if interest rates remained on hold for an extended period, the Fed's path to neutral level would be slower.

Shrinking Fed's Balance Sheet

On the topic of shrinking the Fed's balance sheet, Bostic indicated that the central bank was approaching a point where further reductions could destabilize money market funds. He advocated for a more cautious approach, especially in light of the upcoming debt ceiling debate.