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“Waiting does carry risks, which is why we have to be extra vigilant about this,” he said. “Because we have lags in our policies in both directions, we really can’t be late. We have to act very quickly.”
The speech by the Atlanta Fed president will further strengthen market expectations that the Fed will begin implementing its first interest rate cut in September since the coronavirus pandemic ravaged the U.S. economy in 2020.
Strong U.S. retail sales data and healthy earnings from Walmart on Thursday dampened expectations that the Federal Reserve will need to cut interest rates by a steeper half-percentage point at its next meeting, with traders in the federal funds futures market reducing bets on how quickly the central bank will ease monetary policy.
The Fed will next meet in mid-September, six weeks before the November presidential election, and will meet again shortly after the vote and finally in December.
Lowering borrowing costs before the election would be welcome to the White House but politically controversial, with Republican candidate Donald Trump warning the Fed last month against cutting rates.
Bostic has previously supported a rate cut before the end of the year and warned that the Fed needs to be “absolutely sure” of its control over inflation before lowering borrowing costs.
Bostic’s change of stance came after July inflation data showed annual consumer price growth fell below 3% for the first time since March 2021 – a sharp drop from a peak of more than 9% in June 2022.
“We’ve been saying all along that we wanted to see actual numbers to give us more confidence that we were on track for 2% and I have to say the actual numbers over the last few months have given me more confidence that we were on track for 2%,” Bostic told the Financial Times.
He added that the consumer price index report released on Wednesday was a “very, very positive sign.”
The Federal Reserve has kept interest rates at a 23-year high of 5.25-5.5% for more than a year to curb inflation. While the labor market remains strong, there are signs that its resilience is waning.
Monthly job growth slowed further in July and the unemployment rate rose for a fourth straight month to 4.3%, raising concerns that the world’s largest economy is in recession.
Bostic on Wednesday described the labor market as “soft but not weak” and said businesses he has spoken to in the Southern U.S. are pausing hiring rather than laying off workers.
Asked whether the Fed should consider cutting interest rates by half a basis point, rather than just a quarter point, if the labor market weakens faster than expected, Bostic said “anything is possible.”
“If we found that the dislocations that were occurring indicated that the labor market was going to break down — or was likely to break down — I would be very supportive of taking more aggressive steps to minimize that pain,” he added, though he said that was not his view.
By Colby Smith
© Financial Times
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