Bostic: Lowering inflation to 2% will allow policy rate to decline

Bostic: Lowering inflation to 2% will allow policy rate to decline

Bostic: Lowering Inflation to 2% Will Allow Policy Rate to Decline
February 20, 2026

Federal Reserve Bank of Atlanta President Raphael Bostic emphasized that reducing inflation to the Fed's 2% target remains a critical prerequisite for lowering the policy rate. Speaking ahead of his retirement at month's end, Bostic reiterated his commitment to a restrictive monetary policy stance, stating that stabilizing inflation is essential to avoid entrenching higher price expectations in the economy.

The FOMC's decision to pause rate cuts at its January 2026 meeting—maintaining the federal funds rate target at 3.5% to 3.75%—reflects this priority. While three consecutive rate cuts were enacted in 2025, Bostic argued that progress in curbing inflation has stalled in the "high 2s, low 3s" range. "We need to be patient," he said, noting that inflation remains above target and poses a greater risk to economic stability than a near-term labor market slowdown.

Bostic acknowledged recent mixed signals in employment data but attributed delays in assessing labor market health to disruptions caused by government shutdowns. "We won't have clarity until April or May," he stated, citing challenges in interpreting real-time economic indicators. Despite this, he expressed cautious optimism about 2026, pointing to the waning impact of tariffs and potential stimulus from recent tax cuts as factors that could support growth.

The Atlanta Fed president also highlighted the Southeast's muted economic activity in late 2025, with flat employment and transportation metrics but modest gains in retail and manufacturing. Business contacts indicated reduced plans to pass tariff costs to consumers, suggesting downward pressure on inflation.

Bostic's comments align with the broader FOMC outlook, as Chair Jerome Powell noted "broad support" for maintaining rates steady in January. Two dissenting votes favored a rate cut, but Bostic stressed that inflation risks justify a restrictive posture. He said once inflation gets entrenched in people's minds, it changes how the economy evolves.

With no rate cuts projected for 2026, Bostic's successor will inherit a policy framework prioritizing inflation control. As he prepares to step down, his message underscores the Fed's dual mandate challenge: balancing price stability with employment goals in an uncertain economic landscape.