“Waiting does bring risk, and that’s why we have to be extra vigilant on this,” he said. “Because our policies act with a lag in both directions, we can’t really afford to be late. We have to act as soon as possible.”
The comments from the Atlanta Fed chief will further bolster market expectations that the central bank will begin cutting rates in September for the first time since the Covid-19 pandemic ravaged the US economy in 2020.
On Thursday (US time), strong US retail sales data and healthy results from Walmart damped expectations that the Fed will need to deliver a larger half-point reduction when it next meets, as traders in federal funds futures markets scaled back their bets on how quickly the central bank would ease monetary policy.
The Fed next meets in mid-September, six weeks before November’s presidential election and then again shortly after the vote, before a final meeting in December.
A cut to borrowing costs ahead of the election would be welcomed by the White House but politically controversial, with Republican candidate Donald Trump last month warning the Fed not to cut rates.
Bostic had previously supported a rate cut towards the end of the year, warning that the Fed needed to be “absolutely sure” about its grip on inflation before easing borrowing costs.
Bostic’s shift in stance came after inflation data for July showed annual consumer price growth slipped below 3% for the first time since March 2021 – a sharp drop from the peak above 9% notched in June 2022.
“We’ve been saying for a long time that we want to see the numbers come in to give us more confidence that we’re sustainably on the path to 2% and I have to say, the numbers that have come in in the last several months have given me greater confidence that we’re sustainably on that path,” Bostic told the FT.
The consumer price index report released on Wednesday was a “very, very positive sign”, he added.
The Fed has held interest rates at a 23-year high of 5.25-5.5% for more than a year as it battles to tame inflation. While the labour market has remained strong, there are signs that its resilience is fraying.
Monthly job growth slowed further in July as the unemployment rate rose for a fourth-straight month to 4.3%, fanning fears of a recession in the world’s biggest economy.
Bostic on Wednesday characterised the labour market as “weakening but not weak” and said the businesses he speaks to across the US south were pausing hiring rather than firing workers.
Asked whether the Fed should consider cutting rates by increments of half a point, not just a quarter point, if the labour market weakens faster than expected, Bostic said “everything is on the table”.
“If we see that there is disruption that’s happening that suggests that labour markets are going to collapse – or might [collapse] – I would very much support moving more assertively to minimise the amount of that pain,” he added, although he said this was not his outlook.
Written by: Colby Smith
© Financial Times
