Atlanta Fed's Bostic: Rate Cuts Still Possible Amid Economic Uncertainty and New Policies
Atlanta Federal Reserve President Raphael Bostic has indicated that interest rate cuts remain under consideration in 2025 as policymakers evaluate economic developments and assess the potential impact of the Trump administration's policies.
"I am not taking anything off the table," Bostic said in a recent interview. "I am not putting anything extra on the table."
The Fed maintained its benchmark interest rates following its last meeting, reflecting concerns about inflation and the potential consequences of new trade and immigration policies.
Bostic acknowledged that January's inflation figures, which exceeded expectations, reinforced the Fed's cautious stance. However, he emphasized that inflation may not decline linearly towards the Fed's 2% target.
"I think the biggest question right now is whether that data point represents a new trend or just a bump in the road," Bostic said, indicating that he and his team would closely monitor economic indicators over the coming months.
Markets have adjusted their expectations for the Fed's monetary policy, with traders now predicting only one rate cut in 2025. Bostic expressed confidence in the Fed's easing cycle, which began in September 2024 and has already reduced interest rates by a full percentage point.
"I don't think we have cut too much," Bostic said. "We are still in a restrictive posture and that's what we need."
He emphasized that the Fed's policy rate remains sufficiently high to curb inflation. "We couldn't wait until we got all the way to 2% to start reducing our rate. What we have done is appropriate."
Bostic also acknowledged the potential impact of the Trump administration's proposed tariffs, tax cuts, and deregulation measures. He noted that businesses have expressed concerns and uncertainties regarding these policies.
"I don't want to presuppose anything," Bostic said, highlighting his concerns over the complex mix of factors affecting inflation.
Bostic's cautious stance aligns with the minutes from the Fed's recent meeting, which revealed concerns about inflation and the potential effects of new government policies. The minutes also acknowledged the difficulty in distinguishing between persistent and temporary inflation changes associated with government actions.
When asked about the possibility of the Fed maintaining interest rates throughout 2025, Bostic stated that this outcome would likely result in a slower return to the neutral rate.
Regarding the Fed's balance sheet reduction, Bostic expressed caution, suggesting that the central bank is approaching the level where further reductions could impact volatility in money market funds.
"I think we're getting close to that level," said Bostic, noting the need for increased caution moving forward.