Atlanta FED Chair Raphael Bostic Warns against Rate Cuts, Possible Inflation ‘See-Saw’. Atlanta Federal Reserve Bank President Raphael Bostic raised concerns about the potential results of swift interest rate cuts on inflation, warning of a possible “see-saw” effect.
Bostic expressed these concerns ahead of the release of December’s Consumer Price Index (CPI) reading. While he anticipates a deceleration in the progression of inflation, he cautions that there are risks of inflation stalling out altogether.
Bostic acknowledged that price points have fallen more rapidly than anticipated, but he still envisions inflation hovering around 2.5% by the end of 2024.
Notably, he emphasized that it might not reach the Federal Reserve’s target until 2025. The Federal Reserve has a dual mandate to achieve maximum employment and stable prices, with a target inflation rate of 2%.
“Inflation must be firmly and surely getting back to our 2 percent target. It would be a bad outcome if we started to ease and inflation started to rise up and down like a see-saw,” cautioned Bostic.
He stressed the importance of maintaining people’s confidence in the economic trajectory, highlighting the potential negative impact on public perception if inflation becomes unpredictable.
Addressing investors’ expectations, Bostic spoke to the divergence between their optimism regarding market stabilization and the Federal Reserve’s projections. While investors may anticipate a quicker return to stability, Bostic emphasized the clarity and consistency of the Federal Reserve’s projections.
Bostic also drew a connection between recent attacks on vessels in the Suez Canal by Houthi rebels and the escalating costs of shipping. He expressed interest in understanding the extent to which conflicts in the Middle East impact the cost structures for businesses in his district.
Despite acknowledging the strength of the labor market, Bostic emphasized that it is not yet time for the Federal Reserve to shift its focus from inflation to job creation.
“If we look at our employment mandate, we’re hitting that very firmly today,” said Bostic. However, he pointed out signs of weakness in certain segments of the economy beneath the surface, indicating the need for a cautious approach.
Bostic also addressed concerns about potential market spikes due to the issuance of government debt. He dismissed the notion that the Fed needs to be overly cautious about such spikes, stating, “Today, we haven’t really seen any movements in money markets that suggest we’re close to a scenario where we don’t have ample reserves anymore.” However, he acknowledged that at some point, there may be signals indicating a need for the Fed to reevaluate its approach.
The comments from Bostic reflect the delicate balancing act the Federal Reserve faces as it navigates monetary policy in the face of economic uncertainties. The concern about a potential “see-saw” effect in inflation underscores the challenge of managing interest rates to support economic growth without triggering unintended consequences.
Inflation dynamics are closely monitored by the Federal Reserve, and Bostic’s remarks indicate a commitment to maintaining stability and confidence in the economy. The caution expressed regarding interest rate cuts signals a measured approach, recognizing the potential impact on inflation expectations and public perception.
