Atlanta Fed's Bostic Hints at Rate Cut Amid Inflation Decline and Rising Unemployment
Wednesday, Aug 28, 2024 9:00 pm ET
1min read Federal Reserve Bank of Atlanta President Raphael Bostic has indicated that the time might be right for an interest rate cut. However, he remains cautious and seeks further data to support this decision in the upcoming month. Bostic has reiterated that the faster-than-expected decline in inflation and the steeper-than-expected rise in unemployment have resulted in a sooner-than-anticipated timeline for potential rate cuts, but he is proceeding with prudence.
Speaking at an event on Wednesday, Bostic emphasized the need for caution. "I don't want us to be in a position where we cut rates and then have to raise them again," he said. "So, if I'm going to err on one side, it's going to be to wait longer to ensure we don't get into this up-and-down situation." However, he noted that this is not his baseline expectation.
Bostic mentioned that upcoming inflation and employment reports will serve as important indicators for policymakers to confirm the ongoing trends they have been monitoring. The U.S. PCE price index for July, set to be released this Friday, is expected to further signal the much-anticipated rate cut. Additionally, the U.S. personal spending data for July, to be published on the same day, appears to show that the Fed has successfully sustained economic expansion.
Economists project that the core PCE price index, which the Fed prefers as a measure of underlying inflation, will climb for the second consecutive month by 0.2% month-over-month in July. This movement would bring the three-month annualized core inflation rate down to 2.1%, slightly above the Fed’s 2% target. Moreover, U.S. personal spending is expected to rise by 0.5% month-over-month in July, marking the largest gain in four months. Since consumer spending is a critical driver of U.S. economic growth, this data is anticipated to highlight the resilience of the U.S. economy.
During last week's global central bank symposium in Jackson Hole, Federal Reserve Chair Jerome Powell acknowledged the recent progress in addressing inflation. Powell expressed confidence that inflation is on the path back to the 2% target. He also stated, "We do not seek and would not welcome further cooling in the labor market. The upside risks to inflation have diminished, and the downside risks to employment have increased. It is time to adjust policies accordingly." This statement has been interpreted as a direct signal that the Fed may initiate rate cuts in September.
Speaking at an event on Wednesday, Bostic emphasized the need for caution. "I don't want us to be in a position where we cut rates and then have to raise them again," he said. "So, if I'm going to err on one side, it's going to be to wait longer to ensure we don't get into this up-and-down situation." However, he noted that this is not his baseline expectation.
Bostic mentioned that upcoming inflation and employment reports will serve as important indicators for policymakers to confirm the ongoing trends they have been monitoring. The U.S. PCE price index for July, set to be released this Friday, is expected to further signal the much-anticipated rate cut. Additionally, the U.S. personal spending data for July, to be published on the same day, appears to show that the Fed has successfully sustained economic expansion.
Economists project that the core PCE price index, which the Fed prefers as a measure of underlying inflation, will climb for the second consecutive month by 0.2% month-over-month in July. This movement would bring the three-month annualized core inflation rate down to 2.1%, slightly above the Fed’s 2% target. Moreover, U.S. personal spending is expected to rise by 0.5% month-over-month in July, marking the largest gain in four months. Since consumer spending is a critical driver of U.S. economic growth, this data is anticipated to highlight the resilience of the U.S. economy.
During last week's global central bank symposium in Jackson Hole, Federal Reserve Chair Jerome Powell acknowledged the recent progress in addressing inflation. Powell expressed confidence that inflation is on the path back to the 2% target. He also stated, "We do not seek and would not welcome further cooling in the labor market. The upside risks to inflation have diminished, and the downside risks to employment have increased. It is time to adjust policies accordingly." This statement has been interpreted as a direct signal that the Fed may initiate rate cuts in September.