Fed’s Bostic: No sequential rate cuts and highlights risks of pent-up exuberance

Atlanta Fed President Raphael Bostic emphasized the necessity of seeing “more progress” on inflation reduction before considering any rate cuts. He said overnight that the prosperity in the labor market and the economy, granting the FOMC the “luxury of making policy without the pressure of urgency.”

In terms of the pace of policy loosening once initiated, Bostic envisages a measured approach rather than “back to back” adjustments. The reaction of market participants, business leaders, and households to policy changes will critically influence the pace of rate cuts.

Highlighting ongoing inflation concerns, Bostic pointed out the continued price increases in a significant portion of goods and services at rates exceeding 5% annually. Moreover, a Dallas Fed measure indicated that underlying inflation remains slightly above Fed’s target at 2.6%, further complicating the path towards rate normalization.

Bostic also reflected on the feedback from business executives, noting a widespread strategy of holding back investments and hiring until more favorable conditions emerge. He warned of the “pent-up exuberance” that could result from a large-scale unleashing of this dormant capacity, introducing a new variable of upside risk to the economy.