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Fed’s Bostic foresees rate cuts in Q3, sets high bar for earlier action

Atlanta Fed Raphael Bostic said overnight that he now projects Fed to begin cutting interest rates in the third quarter of this year, a shift in timing from his previous expectation of the fourth quarter.

This adjustment is a response to the recent economic data, as he explained, “Because I’m data dependent, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and thus moved up my projected time to begin normalizing the federal funds rate to the third quarter of this year from the fourth quarter.”

While Bostic does not entirely dismiss the possibility of an earlier rate cut, potentially as soon as July, he emphasizes that the criteria for such a decision would be stringent. “The bar will be high,” he stated, indicating that any move to cut rates before the third quarter would require substantial and convincing evidence.

He elaborated on this point, saying, “If we continue to see a further accumulation of downside surprises in the data, it’s possible for me to get comfortable enough to advocate normalization sooner than the third quarter.” However, he stresses that the evidence supporting such a decision would need to be compelling.

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