Fed's Bostic: Clarity on Inflation and Policies Needed Before Rate Cuts

Atlanta Fed President Raphael Bostic has expressed caution regarding further interest rate cuts, emphasizing the need for more clarity on inflation trends and other policy developments before supporting additional reductions. In a recent interview, Bostic stated that he is undecided on whether an interest-rate cut is needed in the December meeting and is keeping his options open (Bloomberg, January 18, 2024).

Bostic's cautious stance aligns with the broader FOMC's projections for rate reductions in 2025, as indicated in the Summary of Economic Projections from the December 2024 meeting. The median expectation from participants was roughly 50 basis points (0.5 percentage points) in reductions this year, down from a median projection at the September meeting of roughly 100 basis points (1 percentage point).

Bostic's uncertainty about the economy guides his current position to wait for more data before he will support changing the target range for the nation's benchmark interest rate (Atlanta Rotary Club, February 3, 2024). He is prepared to wait for a while and will move if it becomes clear where the economy is going.



Bostic is closely monitoring several indicators and data points to gain a better understanding of the inflation situation and the direction of the economy. Some of these include:

1. Personal Consumption Expenditures (PCE) price index: Bostic is closely monitoring the PCE price index, which is the Fed's preferred inflation gauge. He is looking for continued progress towards the 2% target, as seen in the July 2024 PCE print of 2.5%. He expects the upcoming report on Friday to show further progress.
2. Consumer Price Index (CPI): Bostic is also keeping an eye on the CPI, which is an important indicator of how consumers are experiencing the economy. The August 2024 CPI was 2.5%, down significantly from its recent heights and at the lowest levels since early 2021. He is looking for this trend to continue.
3. Breadth of price increases: Bostic is encouraged by the narrowing breadth of price increases, which is a key signal that inflation is moving towards price stability. For the three months through July 2024, 27% of prices, weighted by expenditures, rose by more than 5% in the PCE price index, compared to the same period a year earlier. This is the lowest share since mid-2021. The figure for July alone was 18%, the lowest level since October 2020 and just above 15%.
4. Inflation expectations: Bostic is not seeing signs of a surge in economic energy that could spark inflationary pressures. Inflation expectations have remained quite stable and relatively in line with prepandemic norms. He is looking for this stability to continue.
5. Market-based measures of rental price growth: Bostic is aware that housing prices have been a major factor contributing to the continued stubbornness of elevated inflation. He is looking for market-based measures of rental price growth to soften and eventually filter through to the official inflation statistics.

These indicators and data points will influence Bostic's decision to support a rate cut by providing a clearer picture of the inflation trends and the direction of the economy. If these indicators continue to show progress towards price stability, Bostic may be more inclined to support a rate cut. However, if the data suggests that inflation is not cooling as expected or that there are risks to the labor market, Bostic may be more cautious in his approach to monetary policy.

In summary, Bostic's emphasis on waiting for more data before supporting a rate cut is consistent with his cautious approach to monetary policy and helps to ensure that the Fed's policy decisions are well-informed, transparent, and accountable. This approach may differ from other FOMC members' views and has implications for the Fed's overall monetary policy strategy, as it minimizes the risk of premature or ill-informed decisions and fosters a more data-driven and accountable policy process.