Atlanta Fed’s Bostic says ‘we’re close’ on starting to normalize rates

ablokhin

Asked when the Federal Reserve will start to normalize policy, Atlanta Fed President Raphael Bostic said, “We’re close.”

He’s leaning toward more than one rate cut this year, as inflation came down more than he expected, he said Friday in an interview on CNBC. In June, Bostic had expected only one rate cut by the end of the year.

Inflation “is not particularly close” to its 2% goal, but the central bank isn’t going to wait until it reaches that target.

Bostic pointed out that, for one thing, “passive tightening” through lower inflation “is a thing.” So the lower inflation gets, the tighter policy becomes even without any further rate hikes.

Note that policymakers often remind investors that the Fed’s policy actions work with a lag, so some of its last rate hikes in mid-2023 may still be working their way through the economy.

But Bostic said that the Fed must be thoughtful and patient in its actions, even if markets are eager for the policymakers to start cutting rates.

Over the past few years, “the unexpected seems to routinely happen,” Bostic said.

At 10 AM ET, Fed Chair Jerome Powell will speak at the Jackson Hole Economic Symposium, which this year has the theme “Reassessing the Effectiveness and Transmission of Monetary Policy.”