Atlanta Fed President: Rate Cuts Still on the Table Amid Uncertain Economic Outlook

Atlanta Federal Reserve President Raphael Bostic has affirmed that interest rate cuts are still a possibility this year, despite concerns about inflation and the potential impact of Trump administration policies.

Cautious Stance After Hot Inflation Reading

Following the release of higher-than-expected inflation data in January, the Fed maintained its current interest rates. The core Consumer Price Index (CPI) rose 3.3% over the past year, fueling worries about persistent price increases.

Bostic's Assessment

Bostic remains cautious, acknowledging that inflation may not decline in a linear fashion to the Fed's 2% target. He stated, "I am not taking anything off the table... I am not putting anything extra on the table."

Market Expectations Adjust

Traders have reduced their expectations for Fed rate cuts in 2025, predicting only one cut later in the year. However, Bostic does not believe the Fed has over-eased with its cycle of rate reductions last year.

Uncertainty over Trump Policies

Bostic expressed concerns about the impact of the Trump administration's potential tariffs, tax cuts, and deregulation efforts. He noted that businesses are expressing uncertainty about the potential inflationary or investment-stimulating effects of these policies.

Business Costs and Consumer Spending

Bostic highlighted concerns that businesses may have to absorb higher tariff-related prices due to consumer intolerance for inflation. He emphasized that consumers are "pretty much tapped out."

Minutes of Fed Meeting

The minutes from the Fed's last meeting echoed Bostic's cautious stance, reflecting concerns about inflation and the potential impact of new administration policies.

Impact of New Policies

Bostic acknowledged that if the Fed remains on hold for the entire year, it would take longer to return to its neutral policy stance.

Shrinking Fed Balance Sheet

Regarding the Fed's balance sheet reduction, Bostic believes the central bank is approaching a level where further reductions could impact money market funds. He called for caution in slowing or pausing the runoff, especially amidst the current economic uncertainty.