Atlanta Federal Reserve President Raphael Bostic indicated on Wednesday his readiness to begin reducing interest rates, despite inflation remaining above the central bank’s target. Formerly known for his hawkish stance favoring tighter policies to combat inflation, Bostic highlighted a shift in focus towards the employment aspect of the Fed’s mandate as indications of labor market softening emerge.
In a statement posted on the Atlanta Fed’s website, Bostic expressed his belief that waiting for inflation to drop all the way to 2 percent before easing restrictions could lead to labor market disruptions causing unnecessary hardship. The Fed’s preferred inflation measure revealed a 2.5% rate in July, with a slightly higher 2.6% core rate excluding food and energy. Bostic did not specify the extent or timing of the easing measures he believes the Fed should undertake.
Despite the lack of specifics, the message comes amidst widespread market expectations for the Federal Open Market Committee to lower its benchmark borrowing rate by at least a quarter percentage point during its meeting on September 17-18. Bostic’s role as an FOMC voting member this year lends weight to his views, providing further assurance that the Fed will implement its first easing measures since the emergency actions taken over four years ago during the early stages of the Covid crisis.
Bostic’s comments precede an anticipated nonfarm payrolls report, with most economists predicting a slowdown in the labor market. Reflecting on his interactions with business leaders in the Atlanta region, Bostic acknowledged concerns about the economy and labor market losing momentum, although he noted the absence of imminent panic or crisis among his contacts. He highlighted a positive aspect of the slowdown, indicating a welcome decline in inflation pace as economic activity moderates.
Citing various factors signaling a return to the Fed’s inflation target as the labor market cools, Bostic emphasized a rebalancing of focus towards both aspects of the dual mandate for the first time since early 2021.
