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
